Public Debts

In that rude state of society which precedes the extension of commerce and the improvement of manufactures; when those expensive luxuries, which commerce and manufactures can alone introduce, are altogether unknown; the person who possesses a large revenue, I have endeavoured to show in the third book of this Inquiry, can spend or enjoy that revenue in no other way than by maintaining nearly as many people as it can maintain. A large revenue may at all times be said to consist in the command of a large quantity of the necessaries of life. In that rude state of things, it is commonly paid in a large quantity of those necessaries, in the materials of plain food and coarse clothing, in corn and cattle, in wool and raw hides. When neither commerce nor manufactures furnish any thing for which the owner can exchange the greater part of those materials which are over and above his own consumption, he can do nothing with the surplus, but feed and clothe nearly as many people as it will feed and clothe. A hospitality in which there is no luxury, and a liberality in which there is no ostentation, occasion, in this situation of things, the principal expenses of the rich and the great. But these I have likewise endeavoured to show, in the same book, are expenses by which people are not very apt to ruin themselves. There is not, perhaps, any selfish pleasure so frivolous, of which the pursuit has not sometimes ruined even sensible men. A passion for cock-fighting has ruined many. But the instances, I believe, are not very numerous, of people who have been ruined by a hospitality or liberality of this kind; though the hospitality of luxury, and the liberality of ostentation have ruined many. Among our feudal ancestors, the long time during which estates used to continue in the same family, sufficiently demonstrates the general disposition of people to live within their income. Though the rustic hospitality, constantly exercised by the great landholders, may not, to us in the present times, seem consistent with that order which we are apt to consider as inseparably connected with good economy; yet we must certainly allow them to have been at least so far frugal, as not commonly to have spent their whole income. A part of their wool and raw hides, they had generally an opportunity of selling for money. Some part of this money, perhaps, they spent in purchasing the few objects of vanity and luxury, with which the circumstances of the times could furnish them; but some part of it they seem commonly to have hoarded. They could not well, indeed, do any thing else but hoard whatever money they saved. To trade, was disgraceful to a gentleman; and to lend money at interest, which at that time was considered as usury, and prohibited by law, would have been still more so. In those times of violence and disorder, besides, it was convenient to have a hoard of money at hand, that in case they should be driven from their own home, they might have something of known value to carry with them to some place of safety. The same violence which made it convenient to hoard, made it equally convenient to conceal the hoard. The frequency of treasure-trove, or of treasure found, of which no owner was known, sufficiently demonstrates the frequency, in those times, both of hoarding and of concealing the hoard. Treasure-trove was then considered as an important branch of the revenue of the sovereign. All the treasure-trove of the kingdom would scarce, perhaps, in the present times, make an important branch of the revenue of a private gentleman of a good estate.

In the third book of this Inquiry, I tried to show how a wealthy person spends a large income in an early stage of society. This is the stage before commerce expands and manufacturing improves, when the expensive luxuries that only commerce and manufacturing can introduce are entirely unknown. In such a society, a wealthy person can spend or enjoy that income in only one way: by supporting nearly as many people as the income can support. A large income can always be said to give a person control over a large quantity of life’s necessities. In this early stage of society, income is usually paid in those necessities. They include the materials for plain food and coarse clothing, such as grain, cattle, wool, and raw hides. The owner consumes some of these materials. But when commerce and manufacturing offer nothing for which he can exchange most of the rest, he has only one use for the surplus. He can feed and clothe nearly as many people as it will feed and clothe. In these circumstances, the main expenses of the rich and powerful are hospitality without luxury and generosity without display. But in the same book, I also tried to show that such expenses are not very likely to ruin people. There is perhaps no selfish pleasure so trivial that its pursuit has never ruined even sensible people. A passion for cockfighting has ruined many. But I believe that relatively few people have been ruined by hospitality or generosity of this kind. By contrast, luxurious hospitality and showy generosity have ruined many. Among our feudal ancestors, estates usually remained in the same family for a long time. This shows clearly enough that people generally lived within their income. The great landowners constantly practiced a simple, rural hospitality. Today, this may not seem consistent with the order we tend to regard as essential to good financial management. Yet we must surely grant that they were at least frugal enough not to spend their entire income as a rule. They generally had an opportunity to sell some of their wool and raw hides for money. Perhaps they spent some of this money on the few objects of vanity and luxury available at the time. But they also seem usually to have hoarded some of it. Indeed, they could hardly do anything else with the money they saved. Trade was disgraceful for a gentleman. Lending money at interest, which was then regarded as usury and prohibited by law, would have been even more disgraceful. In those violent and disorderly times, it was also useful to have a store of money at hand. If people were driven from their homes, they would have something of known value to carry to safety. The same violence that made hoarding useful also made it useful to conceal the money. Treasure-trove, or found treasure with no known owner, was common enough. This clearly shows that people in those times often hoarded and concealed money. Treasure-trove was then regarded as an important source of revenue for the sovereign. Today, all the treasure-trove in the kingdom would perhaps hardly make an important addition to the income of a private gentleman with a good estate.

The same disposition, to save and to hoard, prevailed in the sovereign, as well as in the subjects. Among nations, to whom commerce and manufacture are little known, the sovereign, it has already been observed in the Fourth book, is in a situation which naturally disposes him to the parsimony requisite for accumulation. In that situation, the expense, even of a sovereign, cannot be directed by that vanity which delights in the gaudy finery of a court. The ignorance of the times affords but few of the trinkets in which that finery consists. Standing armies are not then necessary; so that the expense, even of a sovereign, like that of any other great lord can be employed in scarce any thing but bounty to his tenants, and hospitality to his retainers. But bounty and hospitality very seldom lead to extravagance; though vanity almost always does. All the ancient sovereigns of Europe, accordingly, it has already been observed, had treasures. Every Tartar chief, in the present times, is said to have one.

The same desire to save and hoard prevailed among rulers and their subjects. As noted in the Fourth book, rulers of nations with little commerce or manufacturing are naturally inclined to save and accumulate wealth. In such nations, even a ruler cannot spend money to satisfy the vanity that delights in the showy splendor of a court. The limited knowledge of the times provides few of the trinkets that make up such splendor. Standing armies are not yet necessary. So even a ruler, like any other great lord, can spend money on little besides generosity to tenants and hospitality to retainers. But generosity and hospitality very rarely lead to extravagance, though vanity almost always does. Accordingly, as already noted, all the ancient rulers of Europe had treasures. Every Tartar chief today is said to have one.

In a commercial country, abounding with every sort of expensive luxury, the sovereign, in the same manner as almost all the great proprietors in his dominions, naturally spends a great part of his revenue in purchasing those luxuries. His own and the neighbouring countries supply him abundantly with all the costly trinkets which compose the splendid, but insignificant, pageantry of a court. For the sake of an inferior pageantry of the same kind, his nobles dismiss their retainers, make their tenants independent, and become gradually themselves as insignificant as the greater part of the wealthy burghers in his dominions. The same frivolous passions, which influence their conduct, influence his. How can it be supposed that he should be the only rich man in his dominions who is insensible to pleasures of this kind? If he does not, what he is very likely to do, spend upon those pleasures so great a part of his revenue as to debilitate very much the defensive power of the state, it cannot well be expected that he should not spend upon them all that part of it which is over and above what is necessary for supporting that defensive power. His ordinary expense becomes equal to his ordinary revenue, and it is well if it does not frequently exceed it. The amassing of treasure can no longer be expected; and when extraordinary exigencies require extraordinary expenses, he must necessarily call upon his subjects for an extraordinary aid. The present and the late king of Prussia are the only great princes of Europe, who, since the death of Henry IV. of France, in 1610, are supposed to have amassed any considerable treasure. The parsimony which leads to accumulation has become almost as rare in republican as in monarchical governments. The Italian republics, the United Provinces of the Netherlands, are all in debt. The canton of Berne is the single republic in Europe which has amassed any considerable treasure. The other Swiss republics have not. The taste for some sort of pageantry, for splendid buildings, at least, and other public ornaments, frequently prevails as much in the apparently sober senate-house of a little republic, as in the dissipated court of the greatest king.

In a commercial country full of every kind of expensive luxury, the sovereign naturally spends much of his revenue on them. He does so just like almost all the great landowners in his dominions. His own country and its neighbours supply him with plenty of costly trinkets. These make up the splendid but insignificant display of a court. To create a lesser display of the same kind, his nobles dismiss their retainers and make their tenants independent. The nobles themselves gradually become as insignificant as most of the wealthy townspeople in his dominions. The same frivolous passions that influence the nobles also influence the sovereign. How can he be the only rich man in his dominions who is unmoved by such pleasures? He is very likely to spend so much of his revenue on these pleasures that he greatly weakens the state's defenses. But even if he does not, he can hardly be expected to spare any revenue beyond what those defenses require. His ordinary spending comes to equal his ordinary revenue. It is fortunate if his spending does not often exceed his revenue. He can no longer be expected to build up a treasury. So when emergencies require extraordinary spending, he must ask his subjects for extraordinary financial support. Since the death of Henry IV of France in 1610, only two great European princes are thought to have built up substantial treasuries. They are the present and the late king of Prussia. The thrift that leads to such savings has become almost as rare in republics as in monarchies. The Italian republics and the United Provinces of the Netherlands are all in debt. The canton of Berne is the only republic in Europe that has built up a substantial treasury. The other Swiss republics have not. A taste for some kind of display, at least for splendid buildings and other public ornaments, often prevails in the apparently sober senate-house of a small republic. It prevails there as much as in the extravagant court of the greatest king.

The want of parsimony, in time of peace, imposes the necessity of contracting debt in time of war. When war comes, there is no money in the treasury, but what is necessary for carrying on the ordinary expense of the peace establishment. In war, an establishment of three or four times that expense becomes necessary for the defence of the state; and consequently, a revenue three or four times greater than the peace revenue. Supposing that the sovereign should have, what he scarce ever has, the immediate means of augmenting his revenue in proportion to the augmentation of his expense; yet still the produce of the taxes, from which this increase of revenue must be drawn, will not begin to come into the treasury, till perhaps ten or twelve months after they are imposed. But the moment in which war begins, or rather the moment in which it appears likely to begin, the army must be augmented, the fleet must be fitted out, the garrisoned towns must be put into a posture of defence; that army, that fleet, those garrisoned towns, must be furnished with arms, ammunition, and provisions. An immediate and great expense must be incurred in that moment of immediate danger, which will not wait for the gradual and slow returns of the new taxes. In this exigency, government can have no other resource but in borrowing.

A lack of thrift in peacetime makes it necessary to borrow in wartime. When war comes, the treasury has only enough money to cover the ordinary expenses of maintaining the state in peacetime. Defending the state in wartime requires spending three or four times as much. It therefore requires revenue three or four times greater than peacetime revenue. Suppose the sovereign has the means to increase revenue immediately in proportion to the increase in spending. This is hardly ever the case. Even then, the new taxes needed to raise that revenue might not reach the treasury for ten or twelve months after they are imposed. But as soon as war begins, or rather, as soon as war seems likely, the army must be enlarged. The fleet must be equipped, and towns with garrisons must be made ready for defense. The army, the fleet, and the garrisoned towns must be supplied with arms, ammunition, and provisions. At that moment of immediate danger, a large expense must be incurred at once. It cannot wait for the slow, gradual returns from the new taxes. In this emergency, the government has no other recourse but to borrow.

The same commercial state of society which, by the operation of moral causes, brings government in this manner into the necessity of borrowing, produces in the subjects both an ability and an inclination to lend. If it commonly brings along with it the necessity of borrowing, it likewise brings with it the facility of doing so.

A commercial society creates social conditions that make it necessary for the government to borrow. The same society also gives its people both the means and the willingness to lend. If a commercial society commonly makes borrowing necessary, it also makes borrowing easier.

A country abounding with merchants and manufacturers, necessarily abounds with a set of people through whose hands, not only their own capitals, but the capitals of all those who either lend them money, or trust them with goods, pass as frequently, or more frequently, than the revenue of a private man, who, without trade or business, lives upon his income, passes through his hands. The revenue of such a man can regularly pass through his hands only once in a year. But the whole amount of the capital and credit of a merchant, who deals in a trade of which the returns are very quick, may sometimes pass through his hands two, three, or four times in a year. A country abounding with merchants and manufacturers, therefore, necessarily abounds with a set of people, who have it at all times in their power to advance, if they chuse to do so, a very large sum of money to government. Hence the ability in the subjects of a commercial state to lend.

A country with many merchants and manufacturers necessarily has many people who handle large amounts of capital. Not only their own capital passes through their hands, but also the capital of everyone who lends them money or entrusts them with goods. This capital passes through their hands as often as, or more often than, the income of a private person who lives on that income without engaging in trade or business. Such a person's income can regularly pass through their hands only once a year. But a merchant in a trade with very quick returns may handle the full amount of their capital and credit two, three, or four times a year. A country with many merchants and manufacturers therefore necessarily has many people who can at any time advance a very large sum of money to the government, if they choose to do so. This is why the subjects of a commercial state are able to lend.

Commerce and manufactures can seldom flourish long in any state which does not enjoy a regular administration of justice; in which the people do not feel themselves secure in the possession of their property; in which the faith of contracts is not supported by law; and in which the authority of the state is not supposed to be regularly employed in enforcing the payment of debts from all those who are able to pay. Commerce and manufactures, in short, can seldom flourish in any state, in which there is not a certain degree of confidence in the justice of government. The same confidence which disposes great merchants and manufacturers upon ordinary occasions, to trust their property to the protection of a particular government, disposes them, upon extraordinary occasions, to trust that government with the use of their property. By lending money to government, they do not even for a moment diminish their ability to carry on their trade and manufactures; on the contrary, they commonly augment it. The necessities of the state render government, upon most occasions willing to borrow upon terms extremely advantageous to the lender. The security which it grants to the original creditor, is made transferable to any other creditor; and from the universal confidence in the justice of the state, generally sells in the market for more than was originally paid for it. The merchant or monied man makes money by lending money to government, and instead of diminishing, increases his trading capital. He generally considers it as a favour, therefore, when the administration admits him to a share in the first subscription for a new loan. Hence the inclination or willingness in the subjects of a commercial state to lend.

Commerce and manufacturing can seldom flourish for long in a state without a consistent system of justice. People must feel secure in their ownership of property. The law must uphold contracts. And people must expect the state to enforce payment of debts by everyone able to pay. In short, commerce and manufacturing can seldom flourish in a state without some confidence in the justice of its government. That same confidence usually leads great merchants and manufacturers to trust a particular government to protect their property. On extraordinary occasions, it also leads them to trust that government with the use of their property. By lending money to the government, they do not diminish their ability to conduct their trade and manufacturing, even temporarily. On the contrary, they usually increase it. The state’s needs make the government willing, on most occasions, to borrow on terms highly favorable to the lender. The original lender can transfer the government’s promise of repayment to another creditor. And because of widespread confidence in the justice of the state, this promise generally sells for more than its original price. The merchant or wealthy person makes money by lending to the government. Instead of reducing the capital available for trade, the lender increases it. A lender therefore generally regards it as a favor when the government allows him to take part in the initial offer of a new loan. This is why the subjects of a commercial state are inclined or willing to lend.

The government of such a state is very apt to repose itself upon this ability and willingness of its subjects to lend it their money on extraordinary occasions. It foresees the facility of borrowing, and therefore dispenses itself from the duty of saving.

The government of such a state is very likely to rely on its subjects’ ability and willingness to lend it money in extraordinary circumstances. It expects borrowing to be easy, so it excuses itself from the duty of saving.

In a rude state of society, there are no great mercantile or manufacturing capitals. The individuals, who hoard whatever money they can save, and who conceal their hoard, do so from a distrust of the justice of government; from a fear, that if it was known that they had a hoard, and where that hoard was to be found, they would quickly be plundered. In such a state of things, few people would be able, and nobody would be willing to lend their money to government on extraordinary exigencies. The sovereign feels that he must provide for such exigencies by saving, because he foresees the absolute impossibility of borrowing. This foresight increases still further his natural disposition to save.

In a less developed society, there are no large amounts of capital invested in trade or manufacturing. People who hoard and hide whatever money they can save do so because they distrust the justice of the government. They fear that if their hoard and its location became known, they would quickly be robbed. In such a society, few people could lend money to the government in emergencies, and nobody would be willing to do so. The ruler knows that he must save to prepare for such emergencies because he foresees that borrowing will be absolutely impossible. This foresight makes him even more inclined to save.

The progress of the enormous debts which at present oppress, and will in the long-run probably ruin, all the great nations of Europe, has been pretty uniform. Nations, like private men, have generally begun to borrow upon what may be called personal credit, without assigning or mortgaging any particular fund for the payment of the debt; and when this resource has failed them, they have gone on to borrow upon assignments or mortgages of particular funds.

The enormous debts now burdening all the great nations of Europe have grown in much the same way. In the long run, these debts will probably ruin them. Nations, like individuals, have generally begun borrowing on what might be called personal credit. They have not pledged any particular source of funds to repay the debt. When they could no longer borrow this way, they went on to borrow by pledging particular sources of funds.

What is called the unfunded debt of Great Britain, is contracted in the former of those two ways. It consists partly in a debt which bears, or is supposed to bear, no interest, and which resembles the debts that a private man contracts upon account; and partly in a debt which bears interest, and which resembles what a private man contracts upon his bill or promissory-note. The debts which are due, either for extraordinary services, or for services either not provided for, or not paid at the time when they are performed; part of the extraordinaries of the army, navy, and ordnance, the arrears of subsidies to foreign princes, those of seamen’s wages, etc. usually constitute a debt of the first kind. Navy and exchequer bills, which are issued sometimes in payment of a part of such debts, and sometimes for other purposes, constitute a debt of the second kind; exchequer bills bearing interest from the day on which they are issued, and navy bills six months after they are issued. The bank of England, either by voluntarily discounting those bills at their current value, or by agreeing with government for certain considerations to circulate exchequer bills, that is, to receive them at par, paying the interest which happens to be due upon them, keeps up their value, and facilitates their circulation, and thereby frequently enables government to contract a very large debt of this kind. In France, where there is no bank, the state bills (billets d’etat {See Examen des Reflections Politiques sur les Finances.}) have sometimes sold at sixty and seventy per cent. discount. During the great recoinage in king William’s time, when the bank of England thought proper to put a stop to its usual transactions, exchequer bills and tallies are said to have sold from twenty-five to sixty per cent. discount; owing partly, no doubt, to the supposed instability of the new government established by the Revolution, but partly, too, to the want of the support of the bank of England.

Great Britain’s unfunded debt is incurred in the first of those two ways. Part of it bears no interest, or is assumed to bear none. This part resembles the debts a private person runs up on account. The rest bears interest and resembles a private person’s debt on a bill or promissory note. The first kind usually consists of debts for extraordinary services, or for services not provided for or not paid for when performed. Examples include some extraordinary expenses of the army, navy, and ordnance, unpaid subsidies to foreign princes, and unpaid sailors’ wages. Navy and exchequer bills make up the second kind of debt. They are issued sometimes to pay part of such debts and sometimes for other purposes. Exchequer bills bear interest from the day they are issued. Navy bills bear interest six months after they are issued. The Bank of England maintains the value of these bills and makes them easier to circulate. It does this either by voluntarily discounting them at their current value or by making an agreement with the government. Under such an agreement, the bank receives certain benefits in return for circulating exchequer bills. In other words, it accepts them at face value and pays any interest due on them. This support often enables the government to incur a very large debt of this kind. In France, where there is no bank, state bills (billets d’etat {See Examen des Reflections Politiques sur les Finances.}) have sometimes sold at discounts of sixty and seventy percent. During the great recoinage in King William’s time, the Bank of England chose to stop its usual transactions. Exchequer bills and tallies are said to have sold at discounts of twenty-five to sixty percent. This was no doubt partly because the new government established by the Revolution was thought unstable. But it was also partly because the Bank of England was not supporting the bills and tallies.

When this resource is exhausted, and it becomes necessary, in order to raise money, to assign or mortgage some particular branch of the public revenue for the payment of the debt, government has, upon different occasions, done this in two different ways. Sometimes it has made this assignment or mortgage for a short period of time only, a year, or a few years, for example; and sometimes for perpetuity. In the one case, the fund was supposed sufficient to pay, within the limited time, both principal and interest of the money borrowed. In the other, it was supposed sufficient to pay the interest only, or a perpetual annuity equivalent to the interest, government being at liberty to redeem, at any time, this annuity, upon paying back the principal sum borrowed. When money was raised in the one way, it was said to be raised by anticipation; when in the other, by perpetual funding, or, more shortly, by funding.

When this resource is exhausted, the government must pledge a particular source of public revenue to raise money and repay the debt. It has done this in two different ways. Sometimes it has pledged the revenue for a short period, such as a year or a few years. At other times, it has pledged the revenue permanently. In the first case, the revenue was expected to pay both the principal and the interest within the set period. In the second, it was expected to pay only the interest, or a permanent annuity equal to the interest. The government was free to redeem the annuity at any time by repaying the principal borrowed. Money raised in the first way was said to be raised by anticipation. Money raised in the second way was said to be raised by perpetual funding, or simply funding.

In Great Britain, the annual land and malt taxes are regularly anticipated every year, by virtue of a borrowing clause constantly inserted into the acts which impose them. The bank of England generally advances at an interest, which, since the Revolution, has varied from eight to three per cent., the sums of which those taxes are granted, and receives payment as their produce gradually comes in. If there is a deficiency, which there always is, it is provided for in the supplies of the ensuing year. The only considerable branch of the public revenue which yet remains unmortgaged, is thus regularly spent before it comes in. Like an improvident spendthrift, whose pressing occasions will not allow him to wait for the regular payment of his revenue, the state is in the constant practice of borrowing of its own factors and agents, and of paying interest for the use of its own money.

In Great Britain, the government regularly spends each year's land and malt taxes before collecting them. It does so under a borrowing clause always included in the laws that impose those taxes. The Bank of England generally advances the sums the taxes are expected to raise. Since the Revolution, the interest charged has varied from eight to three percent. The bank is repaid as the tax revenue gradually comes in. If there is a shortfall, which there always is, it is covered by the following year's funds. Thus, the only substantial part of public revenue not yet pledged to repay debt is regularly spent before it comes in. The state is like a reckless spendthrift whose urgent needs cannot wait for his regular income. It constantly borrows from its own agents and pays interest to use its own money.

In the reign of king William, and during a great part of that of queen Anne, before we had become so familiar as we are now with the practice of perpetual funding, the greater part of the new taxes were imposed but for a short period of time (for four, five, six, or seven years only), and a great part of the grants of every year consisted in loans upon anticipations of the produce of those taxes. The produce being frequently insufficient for paying, within the limited term, the principal and interest of the money borrowed, deficiencies arose; to make good which, it became necessary to prolong the term.

During the reign of King William and much of Queen Anne’s reign, we were less familiar with perpetual funding than we are now. Most new taxes were imposed for only a short time (four, five, six, or seven years). Much of the money granted each year came from loans secured against the expected revenue from those taxes. The revenue was often insufficient to repay the principal and interest within the set period. As a result, shortfalls arose, and the tax periods had to be extended to cover them.

In 1697, by the 8th of William III., c. 20, the deficiencies of several taxes were charged upon what was then called the first general mortgage or fund, consisting of a prolongation to the first of August 1706, of several different taxes, which would have expired within a shorter term, and of which the produce was accumulated into one general fund. The deficiencies charged upon this prolonged term amounted to £5,160,459: 14: 9½.

In 1697, the 8th of William III., c. 20, charged the shortfalls of several taxes to what was then called the first general mortgage or fund. The fund combined the proceeds of several taxes that would otherwise have expired sooner. These taxes were extended until August 1, 1706. The shortfalls charged to the extended term amounted to £5,160,459: 14: 9½.

In 1701, those duties, with some others, were still further prolonged, for the like purposes, till the first of August 1710, and were called the second general mortgage or fund. The deficiencies charged upon it amounted to £2,055,999: 7: 11½.

In 1701, those duties and some others were extended again for the same purposes, until August 1, 1710. They were called the second general mortgage or fund. The shortfalls charged to this fund amounted to £2,055,999: 7: 11½.

In 1707, those duties were still further prolonged, as a fund for new loans, to the first of August 1712, and were called the third general mortgage or fund. The sum borrowed upon it was £983,254:11:9¼.

In 1707, those duties were extended again, until August 1, 1712, to provide a fund for new loans. They were called the third general mortgage or fund. The sum borrowed against this fund was £983,254:11:9¼.

In 1708, those duties were all (except the old subsidy of tonnage and poundage, of which one moiety only was made a part of this fund, and a duty upon the importation of Scotch linen, which had been taken off by the articles of union) still further continued, as a fund for new loans, to the first of August 1714, and were called the fourth general mortgage or fund. The sum borrowed upon it was £925,176:9:2¼.

In 1708, all those duties were extended again until August 1, 1714, as a fund for new loans. There were two exceptions. Only half of the old subsidy of tonnage and poundage was included in this fund. The duty on imports of Scotch linen had been removed by the articles of union. The fund was called the fourth general mortgage or fund. The sum borrowed against it was £925,176:9:2¼.

In 1709, those duties were all (except the old subsidy of tonnage and poundage, which was now left out of this fund altogether) still further continued, for the same purpose, to the first of August 1716, and were called the fifth general mortgage or fund. The sum borrowed upon it was £922,029:6s.

In 1709, all those duties were extended again for the same purpose, until August 1, 1716. The old subsidy of tonnage and poundage was the exception. It was now left out of this fund altogether. The fund was called the fifth general mortgage or fund. The sum borrowed against it was £922,029 and 6 shillings.

In 1710, those duties were again prolonged to the first of August 1720, and were called the sixth general mortgage or fund. The sum borrowed upon it was £1,296,552:9:11¾.

In 1710, those duties were extended again until August 1, 1720. They were called the sixth general mortgage or fund. The sum borrowed against it was £1,296,552:9:11¾.

In 1711, the same duties (which at this time were thus subject to four different anticipations), together with several others, were continued for ever, and made a fund for paying the interest of the capital of the South-sea company, which had that year advanced to government, for paying debts, and making good deficiencies, the sum of £9,177,967:15:4d, the greatest loan which at that time had ever been made.

In 1711, the same duties, along with several others, were extended forever. By then, the same duties had already been pledged four times. The duties became a fund to pay interest on the capital of the South-sea company. That year, the company had lent the government £9,177,967:15:4d to pay debts and cover shortfalls. It was the largest loan ever made up to that time.

Before this period, the principal, so far as I have been able to observe, the only taxes, which, in order to pay the interest of a debt, had been imposed for perpetuity, were those for paying the interest of the money which had been advanced to government by the bank and East-India company, and of what it was expected would be advanced, but which was never advanced, by a projected land bank. The bank fund at this time amounted to £3,375,027:17:10½, for which was paid an annuity or interest of £206,501:15:5d. The East-India fund amounted to £3,200,000, for which was paid an annuity or interest of £160,000; the bank fund being at six per cent., the East-India fund at five per cent. interest.

Before this period, the main taxes imposed permanently to pay interest on debt were those on money advanced to the government by the bank and East-India company. As far as I have been able to observe, these were the only such taxes. They also included taxes on money expected from a proposed land bank, though that money was never advanced. At this time, the bank fund amounted to £3,375,027:17:10½, with an annual interest payment of £206,501:15:5d. The East-India fund amounted to £3,200,000, with an annual interest payment of £160,000. The interest rate was six percent on the bank fund and five percent on the East-India fund.

In 1715, by the first of George I., c. 12, the different taxes which had been mortgaged for paying the bank annuity, together with several others, which, by this act, were likewise rendered perpetual, were accumulated into one common fund, called the aggregate fund, which was charged not only with the payment of the bank annuity, but with several other annuities and burdens of different kinds. This fund was afterwards augmented by the third of George I., c.8., and by the fifth of George I., c. 3, and the different duties which were then added to it were likewise rendered perpetual.

In 1715, an act of Parliament (1 George I, c. 12) combined several taxes into one common fund, called the aggregate fund. These included the taxes pledged to pay the bank annuity and several others. The act also made these other taxes permanent. The fund was used to pay not only the bank annuity, but also several other annuities and obligations of different kinds. Later acts (3 George I, c. 8, and 5 George I, c. 3) increased the fund. The additional duties added to it were also made permanent.

In 1717, by the third of George I., c. 7, several other taxes were rendered perpetual, and accumulated into another common fund, called the general fund, for the payment of certain annuities, amounting in the whole to £724,849:6:10½.

In 1717, an act passed in the third year of George I’s reign (chapter 7) made several other taxes permanent. These taxes were combined in another common fund, called the general fund. It was used to pay certain annuities totaling £724,849:6:10½.

In consequence of those different acts, the greater part of the taxes, which before had been anticipated only for a short term of years were rendered perpetual, as a fund for paying, not the capital, but the interest only, of the money which had been borrowed upon them by different successive anticipations.

As a result of those acts, most of the taxes became permanent. Previously, their revenues had been pledged for only a few years at a time. The permanent taxes provided a fund to pay only the interest, not the principal, on money borrowed through successive pledges of those revenues.

Had money never been raised but by anticipation, the course of a few years would have liberated the public revenue, without any other attention of government besides that of not overloading the fund, by charging it with more debt than it could pay within the limited term, and not of anticipating a second time before the expiration of the first anticipation. But the greater part of European governments have been incapable of those attentions. They have frequently overloaded the fund, even upon the first anticipation; and when this happened not to be the case, they have generally taken care to overload it, by anticipating a second and a third time, before the expiration of the first anticipation. The fund becoming in this manner altogether insufficient for paying both principal and interest of the money borrowed upon it, it became necessary to charge it with the interest only, or a perpetual annuity equal to the interest; and such improvident anticipations necessarily gave birth to the more ruinous practice of perpetual funding. But though this practice necessarily puts off the liberation of the public revenue from a fixed period, to one so indefinite that it is not very likely ever to arrive; yet, as a greater sum can, in all cases, be raised by this new practice than by the old one of anticipation, the former, when men have once become familiar with it, has, in the great exigencies of the state, been universally preferred to the latter. To relieve the present exigency, is always the object which principally interests those immediately concerned in the administration of public affairs. The future liberation of the public revenue they leave to the care of posterity.

If governments had raised money only by borrowing against future revenue, public revenue would have been freed within a few years. Governments would only have needed to avoid charging the revenue fund with more debt than it could repay within the set period. They would also have needed to avoid borrowing against it again before the first loan was repaid. But most European governments have been incapable of such restraint. They have often overloaded the fund with the first loan. When they did not, they generally went on to overload it by borrowing a second and third time before the first loan was repaid. The fund thus became entirely inadequate to repay both the principal and the interest on the money borrowed against it. So governments had to use it to pay only the interest, or a perpetual annuity equal to the interest. Such reckless borrowing against future revenue inevitably gave rise to the more ruinous practice of perpetual funding. This practice necessarily puts off the freeing of public revenue from a fixed date to one so uncertain that it is unlikely ever to arrive. Yet the new practice can always raise more money than the old practice of borrowing against future revenue. So, once people became familiar with perpetual funding, they universally preferred it in times of great national emergency. Those directly responsible for public affairs are always chiefly concerned with relieving the immediate emergency. They leave the future freeing of public revenue to the care of posterity.

During the reign of queen Anne, the market rate of interest had fallen from six to five per cent.; and, in the twelfth year of her reign, five per cent. was declared to be the highest rate which could lawfully be taken for money borrowed upon private security. Soon after the greater part of the temporary taxes of Great Britain had been rendered perpetual, and distributed into the aggregate, South-sea, and general funds, the creditors of the public, like those of private persons, were induced to accept of five per cent. for the interest of their money, which occasioned a saving of one per cent. upon the capital of the greater part or the debts which had been thus funded for perpetuity, or of one-sixth of the greater part of the annuities which were paid out of the three great funds above mentioned. This saving left a considerable surplus in the produce of the different taxes which had been accumulated into those funds, over and above what was necessary for paying the annuities which were now charged upon them, and laid the foundation of what has since been called the sinking fund. In 1717, it amounted to £523,454:7:7½. In 1727, the interest of the greater part of the public debts was still further reduced to four per cent.; and, in 1753 and 1757, to three and a-half, and three per cent., which reductions still further augmented the sinking fund.

During Queen Anne’s reign, the market interest rate fell from six to five percent. In the twelfth year of her reign, five percent became the highest legal rate for loans secured by private borrowers. Soon afterward, most of Great Britain’s temporary taxes were made permanent. They were divided among the aggregate, South-sea, and general funds. The government’s creditors, like private borrowers’ creditors, were persuaded to accept five percent interest on their loans. This saved the government one percent on the principal of most debts thus funded permanently. It also saved one-sixth of most of the annual payments made from the three great funds. These savings left a considerable surplus from the taxes collected in those funds, beyond what was needed for the annual payments now charged to them. This surplus laid the foundation for what later became known as the sinking fund. In 1717, the sinking fund amounted to £523,454:7:7½. In 1727, the interest on most public debts was reduced further, to four percent. In 1753 and 1757, it was reduced to three and a half percent and three percent. These reductions increased the sinking fund still further.

A sinking fund, though instituted for the payment of old, facilitates very much the contracting of new debts. It is a subsidiary fund, always at hand, to be mortgaged in aid of any other doubtful fund, upon which money is proposed to be raised in any exigency of the state. Whether the sinking fund of Great Britain has been more frequently applied to the one or to the other of those two purposes, will sufficiently appear by and by.

Although a sinking fund is established to pay off old debts, it makes it much easier to take on new ones. It is a reserve fund, always available to be pledged as security alongside another uncertain fund. This helps the state raise money in an emergency. We will soon see clearly enough which of these two purposes Great Britain’s sinking fund has served more often.

Besides those two methods of borrowing, by anticipations and by a perpetual funding, there are two other methods, which hold a sort of middle place between them; these are, that of borrowing upon annuities for terms of years, and that of borrowing upon annuities for lives.

Besides borrowing against future revenues and through perpetual funding, there are two other methods of borrowing. These fall somewhere between the first two. One is borrowing through annuities for a fixed number of years. The other is borrowing through annuities for life.

During the reigns of king William and queen Anne, large sums were frequently borrowed upon annuities for terms of years, which were sometimes longer and sometimes shorter. In 1695, an act was passed for borrowing one million upon an annuity of fourteen per cent., or £140,000 a-year, for sixteen years. In 1691, an act was passed for borrowing a million upon annuities for lives, upon terms which, in the present times, would appear very advantageous; but the subscription was not filled up. In the following year, the deficiency was made good, by borrowing upon annuities for lives, at fourteen per cent. or a little more than seven years purchase. In 1695, the persons who had purchased those annuities were allowed to exchange them for others of ninety-six years, upon paying into the exchequer sixty-three pounds in the hundred; that is, the difference between fourteen per cent. for life, and fourteen per cent. for ninety-six years, was sold for sixty-three pounds, or for four and a-half years purchase. Such was the supposed instability of government, that even these terms procured few purchasers. In the reign of queen Anne, money was, upon different occasions, borrowed both upon annuities for lives, and upon annuities for terms of thirty-two, of eighty-nine, of ninety-eight, and of ninety-nine years. In 1719, the proprietors of the annuities for thirty-two years were induced to accept, in lieu of them, South-sea stock to the amount of eleven and a-half years purchase of the annuities, together with an additional quantity of stock, equal to the arrears which happened then to be due upon them. In 1720, the greater part of the other annuities for terms of years, both long and short, were subscribed into the same fund. The long annuities, at that time, amounted to £666,821: 8:3½ a-year. On the 5th of January 1775, the remainder of them, or what was not subscribed at that time, amounted only to £136,453:12:8d.

During the reigns of King William and Queen Anne, the government frequently borrowed large sums through annuities lasting for various terms. In 1695, an act authorized the borrowing of £1 million through a sixteen-year annuity paying 14 percent, or £140,000 a year. In 1691, an act authorized the borrowing of £1 million through life annuities on terms that would now seem very favorable. But not enough people subscribed to raise the full amount. The following year, the shortfall was made up by borrowing through life annuities at 14 percent. This was a little more than seven years’ purchase. In 1695, the purchasers of those annuities were allowed to exchange them for ninety-six-year annuities. To do so, they had to pay £63 per £100 into the exchequer. In other words, the difference between 14 percent for life and 14 percent for ninety-six years was sold for £63, or four and a half years’ purchase. The government was thought to be so unstable that even these terms attracted few purchasers. During Queen Anne’s reign, money was borrowed on different occasions through life annuities and through annuities lasting thirty-two, eighty-nine, ninety-eight, and ninety-nine years. In 1719, the owners of the thirty-two-year annuities were persuaded to accept South Sea stock in their place. The stock was worth eleven and a half years’ purchase of the annuities. They also received additional stock equal to the overdue payments then owed to them. In 1720, most of the other annuities for fixed terms, both long and short, were subscribed into the same fund. The long annuities then amounted to £666,821:8:3½ a year. By January 5, 1775, the remainder of those annuities not subscribed into the fund amounted to only £136,453:12:8d a year.

During the two wars which began in 1739 and in 1755, little money was borrowed, either upon annuities for terms of years, or upon those for lives. An annuity for ninety-eight or ninety-nine years, however, is worth nearly as much as a perpetuity, and should therefore, one might think, be a fund for borrowing nearly as much. But those who, in order to make family settlements, and to provide for remote futurity, buy into the public stocks, would not care to purchase into one of which the value was continually diminishing; and such people make a very considerable proportion, both of the proprietors and purchasers of stock. An annuity for a long term of years, therefore, though its intrinsic value may be very nearly the same with that of a perpetual annuity, will not find nearly the same number of purchasers. The subscribers to a new loan, who mean generally to sell their subscription as soon as possible, prefer greatly a perpetual annuity, redeemable by parliament, to an irredeemable annuity, for a long term of years, of only equal amount. The value of the former may be supposed always the same, or very nearly the same; and it makes, therefore, a more convenient transferable stock than the latter.

During the two wars that began in 1739 and 1755, little money was borrowed through annuities. These were annuities for either a fixed number of years or for life. An annuity for ninety-eight or ninety-nine years, however, is worth nearly as much as a perpetual annuity. One might therefore think it could raise nearly as much money. But some people buy government stock to provide for their families and the distant future. They would not want to buy stock whose value was continually falling. Such people make up a considerable proportion of both the owners and buyers of stock. Therefore, a long-term annuity will not attract nearly as many buyers as a perpetual annuity. This is true even though its intrinsic value may be nearly the same. Those who subscribe to a new loan generally intend to sell their subscriptions as soon as possible. They greatly prefer a perpetual annuity that Parliament can redeem to an equally large long-term annuity that cannot be redeemed. The value of the perpetual annuity may be assumed to remain the same, or very nearly the same. It is therefore a more convenient form of stock to transfer.

During the two last-mentioned wars, annuities, either for terms of years or for lives, were seldom granted, but as premiums to the subscribers of a new loan, over and above the redeemable annuity or interest, upon the credit of which the loan was supposed to be made. They were granted, not as the proper fund upon which the money was borrowed, but as an additional encouragement to the lender.

During the last two wars mentioned, annuities for a fixed number of years or for life were seldom granted except as bonuses to those subscribing to a new loan. These bonuses were offered in addition to the redeemable annuity or interest that was meant to secure the loan. They were not granted as the actual fund against which the money was borrowed, but as an extra incentive for lenders.

Annuities for lives have occasionally been granted in two different ways; either upon separate lives, or upon lots of lives, which, in French, are called tontines, from the name of their inventor. When annuities are granted upon separate lives, the death of every individual annuitant disburdens the public revenue, so far as it was affected by his annuity. When annuities are granted upon tontines, the liberation of the public revenue does not commence till the death of all the annuitants comprehended in one lot, which may sometimes consist of twenty or thirty persons, of whom the survivors succeed to the annuities of all those who die before them; the last survivor succeeding to the annuities of the whole lot. Upon the same revenue, more money can always be raised by tontines than by annuities for separate lives. An annuity, with a right of survivorship, is really worth more than an equal annuity for a separate life; and, from the confidence which every man naturally has in his own good fortune, the principle upon which is founded the success of all lotteries, such an annuity generally sells for something more than it is worth. In countries where it is usual for government to raise money by granting annuities, tontines are, upon this account, generally preferred to annuities for separate lives. The expedient which will raise most money, is almost always preferred to that which is likely to bring about, in the speediest manner, the liberation of the public revenue.

Life annuities have sometimes been granted in two ways: on individual lives or on groups of lives. In French, these groups are called tontines, after their inventor. With individual life annuities, each annuitant’s death relieves public revenue of the cost of that annuity. With tontines, public revenue is not relieved until every annuitant in a group has died. A group may sometimes consist of twenty or thirty people. The survivors receive the annuities of those who die before them. The last survivor receives the annuities of the whole group. The same revenue can always raise more money through tontines than through individual life annuities. An annuity with a right of survivorship is worth more than an equal annuity for an individual life. It generally sells for somewhat more than it is worth. This is because every man naturally trusts in his own good fortune, the principle behind the success of all lotteries. In countries where governments usually raise money by granting annuities, tontines are therefore generally preferred to individual life annuities. The method that raises the most money is almost always preferred. It is preferred over the method likely to free public revenue from the burden most quickly.

In France, a much greater proportion of the public debts consists in annuities for lives than in England. According to a memoir presented by the parliament of Bourdeaux to the king, in 1764, the whole public debt of France is estimated at twenty-four hundred millions of livres; of which the capital, for which annuities for lives had been granted, is supposed to amount to three hundred millions, the eighth part of the whole public debt. The annuities themselves are computed to amount to thirty millions a-year, the fourth part of one hundred and twenty millions, the supposed interest of that whole debt. These estimations, I know very well, are not exact; but having been presented by so very respectable a body as approximations to the truth, they may, I apprehend, be considered as such. It is not the different degrees of anxiety in the two governments of France and England for the liberation of the public revenue, which occasions this difference in their respective modes of borrowing; it arises altogether from the different views and interests of the lenders.

In France, a much larger share of the public debt consists of lifetime annuities than in England. In 1764, the parliament of Bourdeaux presented a memorandum to the king. It estimated France’s total public debt at 2,400 million livres. Of this, 300 million livres was thought to be capital borrowed in exchange for lifetime annuities. That was one eighth of the total public debt. The annuities themselves were estimated to cost 30 million livres a year. That was one quarter of the estimated annual interest on the whole debt, which was 120 million livres. I know very well that these estimates are not exact. But such a respectable body presented them as approximations to the truth. I believe we may therefore regard them as such. The two governments’ different ways of borrowing do not reflect different degrees of concern about freeing up public revenue. They arise entirely from the different views and interests of the lenders.

In England, the seat of government being in the greatest mercantile city in the world, the merchants are generally the people who advance money to government. By advancing it, they do not mean to diminish, but, on the contrary, to increase their mercantile capitals; and unless they expected to sell, with some profit, their share in the subscription for a new loan, they never would subscribe. But if, by advancing their money, they were to purchase, instead of perpetual annuities, annuities for lives only, whether their own or those of other people, they would not always be so likely to sell them with a profit. Annuities upon their own lives they would always sell with loss; because no man will give for an annuity upon the life of another, whose age and state of health are nearly the same with his own, the same price which he would give for one upon his own. An annuity upon the life of a third person, indeed, is, no doubt, of equal value to the buyer and the seller; but its real value begins to diminish from the moment it is granted, and continues to do so, more and more, as long as it subsists. It can never, therefore, make so convenient a transferable stock as a perpetual annuity, of which the real value may be supposed always the same, or very nearly the same.

In England, the government is based in the greatest trading city in the world. Merchants are therefore usually the people who lend money to the government. By lending it, they do not mean to reduce their trading capital. On the contrary, they mean to increase it. They would never subscribe to a new loan unless they expected to sell their share at a profit. But suppose they used their money to buy life annuities instead of perpetual annuities. These annuities would last only for their own lives or those of other people. They would not always be as likely to sell them at a profit. They would always sell annuities based on their own lives at a loss. No one will pay the same price for an annuity based on another person's life as for one based on their own. This is true even when the other person is nearly the same age and in nearly the same state of health. An annuity based on a third person's life is, of course, equally valuable to buyer and seller. But its real value begins to fall as soon as it is granted. It falls more and more for as long as the annuity lasts. It can therefore never be as convenient an investment to trade as a perpetual annuity. The real value of a perpetual annuity may be assumed to remain the same, or nearly the same.

In France, the seat of government not being in a great mercantile city, merchants do not make so great a proportion of the people who advance money to government. The people concerned in the finances, the farmers-general, the receivers of the taxes which are not in farm, the court-bankers, etc. make the greater part of those who advance their money in all public exigencies. Such people are commonly men of mean birth, but of great wealth, and frequently of great pride. They are too proud to marry their equals, and women of quality disdain to marry them. They frequently resolve, therefore, to live bachelors; and having neither any families of their own, nor much regard for those of their relations, whom they are not always very fond of acknowledging, they desire only to live in splendour during their own time, and are not unwilling that their fortune should end with themselves. The number of rich people, besides, who are either averse to marry, or whose condition of life renders it either improper or inconvenient for them to do so, is much greater in France than in England. To such people, who have little or no care for posterity, nothing can be more convenient than to exchange their capital for a revenue, which is to last just as long, and no longer, than they wish it to do.

In France, the seat of government is not in a major trading city. Merchants therefore make up a smaller share of those who lend money to the government. In every public emergency, most of the money comes from people involved in government finance. These include the farmers-general, who collect certain taxes for profit, the collectors of other taxes, and court bankers. Such people are usually of humble birth but have great wealth, and they are often very proud. They are too proud to marry their equals, while women of high rank disdain to marry them. They therefore often decide to remain bachelors. They have no families of their own and little regard for their relatives, whom they are not always eager to acknowledge. They want only to live in splendor during their own lives, and they do not mind if their fortunes end with them. France also has many more rich people than England who are unwilling to marry. Many others in France cannot marry without impropriety or inconvenience because of their circumstances. Such people care little or nothing about future generations. Nothing could suit them better than exchanging their capital for an income that lasts exactly as long as they wish.

The ordinary expense of the greater part of modern governments, in time of peace, being equal, or nearly equal, to their ordinary revenue, when war comes, they are both unwilling and unable to increase their revenue in proportion to the increase of their expense. They are unwilling, for fear of offending the people, who, by so great and so sudden an increase of taxes, would soon be disgusted with the war; and they are unable, from not well knowing what taxes would be sufficient to produce the revenue wanted. The facility of borrowing delivers them from the embarrassment which this fear and inability would otherwise occasion. By means of borrowing, they are enabled, with a very moderate increase of taxes, to raise, from year to year, money sufficient for carrying on the war; and by the practice of perpetual funding, they are enabled, with the smallest possible increase of taxes, to raise annually the largest possible sum of money. In great empires, the people who live in the capital, and in the provinces remote from the scene of action, feel, many of them, scarce any inconveniency from the war, but enjoy, at their ease, the amusement of reading in the newspapers the exploits of their own fleets and armies. To them this amusement compensates the small difference between the taxes which they pay on account of the war, and those which they had been accustomed to pay in time of peace. They are commonly dissatisfied with the return of peace, which puts an end to their amusement, and to a thousand visionary hopes of conquest and national glory, from a longer continuance of the war.

In peacetime, most modern governments spend as much as, or nearly as much as, they receive in ordinary revenue. When war comes, they are unwilling and unable to increase revenue enough to match their increased spending. They are unwilling because they fear offending the people. A large, sudden tax increase would soon turn people against the war. Governments are also unable to raise enough revenue because they do not know which taxes would produce it. The ease of borrowing saves them from the difficulty this fear and uncertainty would otherwise cause. By borrowing, they can raise enough money each year to carry on the war, with only a moderate tax increase. By funding debt in perpetuity, they can raise the largest possible sum each year with the smallest possible tax increase. In great empires, many people live in the capital or in provinces far from the fighting. They feel hardly any inconvenience from the war. Instead, they can enjoy reading in the newspapers about the exploits of their own fleets and armies. This amusement makes up for the small increase in their taxes over what they paid in peacetime. They are usually dissatisfied when peace returns. Peace ends their amusement and a thousand fanciful hopes of conquest and national glory if the war continued longer.

The return of peace, indeed, seldom relieves them from the greater part of the taxes imposed during the war. These are mortgaged for the interest of the debt contracted, in order to carry it on. If, over and above paying the interest of this debt, and defraying the ordinary expense of government, the old revenue, together with the new taxes, produce some surplus revenue, it may, perhaps, be converted into a sinking fund for paying off the debt. But, in the first place, this sinking fund, even supposing it should be applied to no other purpose, is generally altogether inadequate for paying, in the course of any period during which it can reasonably be expected that peace should continue, the whole debt contracted during the war; and, in the second place, this fund is almost always applied to other purposes.

The return of peace, indeed, rarely frees them from most of the taxes imposed during the war. These taxes are pledged to pay interest on the debt incurred to finance the war. The old revenue and the new taxes may produce a surplus after paying the debt interest and ordinary government expenses. If so, the surplus might perhaps be put into a sinking fund to pay off the debt. But even if this fund is used for no other purpose, it is generally far too small. It cannot pay off the whole war debt within any period that peace can reasonably be expected to last. And the fund is almost always used for other purposes.

The new taxes were imposed for the sole purpose of paying the interest of the money borrowed upon them. If they produce more, it is generally something which was neither intended nor expected, and is, therefore, seldom very considerable. Sinking funds have generally arisen, not so much from any surplus of the taxes which was over and above what was necessary for paying the interest or annuity originally charged upon them, as from a subsequent reduction of that interest; that of Holland in 1655, and that of the ecclesiastical state in 1685, were both formed in this manner. Hence the usual insufficiency of such funds.

The new taxes were imposed solely to pay the interest on money borrowed against them. If the taxes raise more, the extra amount is generally neither intended nor expected. It is therefore seldom very large. Sinking funds have generally come not from tax revenue left over after paying the interest or annuity originally charged against it. Instead, they have usually come from a later reduction in that interest. Both Holland’s sinking fund in 1655 and that of the ecclesiastical state in 1685 were formed this way. This is why such funds are usually insufficient.

During the most profound peace, various events occur, which require an extraordinary expense; and government finds it always more convenient to defray this expense by misapplying the sinking fund, than by imposing a new tax. Every new tax is immediately felt more or less by the people. It occasions always some murmur, and meets with some opposition. The more taxes may have been multiplied, the higher they may have been raised upon every different subject of taxation; the more loudly the people complain of every new tax, the more difficult it becomes, too, either to find out new subjects of taxation, or to raise much higher the taxes already imposed upon the old. A momentary suspension of the payment of debt is not immediately felt by the people, and occasions neither murmur nor complaint. To borrow of the sinking fund is always an obvious and easy expedient for getting out of the present difficulty. The more the public debts may have been accumulated, the more necessary it may have become to study to reduce them; the more dangerous, the more ruinous it may be to misapply any part of the sinking fund; the less likely is the public debt to be reduced to any considerable degree, the more likely, the more certainly, is the sinking fund to be misapplied towards defraying all the extraordinary expenses which occur in time of peace. When a nation is already overburdened with taxes, nothing but the necessities of a new war, nothing but either the animosity of national vengeance, or the anxiety for national security, can induce the people to submit, with tolerable patience, to a new tax. Hence the usual misapplication of the sinking fund.

Even during the deepest peace, events occur that require extraordinary spending. The government always finds it more convenient to cover this expense by diverting money from the sinking fund than by imposing a new tax. People feel every new tax immediately, at least to some extent. It always causes some grumbling and meets some opposition. The more taxes there are, and the higher the tax on each taxable item, the louder people complain about every new tax. It also becomes harder to find new things to tax or to raise existing taxes much higher. People do not immediately feel a temporary halt in debt payments, and it causes no grumbling or complaint. Borrowing from the sinking fund is always an obvious and easy way out of the immediate difficulty. The more public debt has accumulated, the more necessary it may be to try to reduce it. Diverting any part of the sinking fund may also become more dangerous and ruinous. Yet the debt is less likely to be reduced by any significant amount. And the sinking fund is more likely, indeed certain, to be diverted to cover all the extraordinary expenses that arise in peacetime. When a nation is already overburdened with taxes, only the demands of a new war can persuade people to accept another tax with reasonable patience. Only anger and a desire for national revenge, or anxiety about national security, can persuade them to do so. That is why the sinking fund is usually diverted to other purposes.

In Great Britain, from the time that we had first recourse to the ruinous expedient of perpetual funding, the reduction of the public debt, in time of peace, has never borne any proportion to its accumulation in time of war. It was in the war which began in 1668, and was concluded by the treaty of Ryswick, in 1697, that the foundation of the present enormous debt of Great Britain was first laid.

In Great Britain, we began using the ruinous expedient of perpetual funding. Since then, reductions in the public debt during peacetime have never been proportionate to its growth during war. The foundation of Great Britain’s present enormous debt was first laid during the war that began in 1668. That war ended with the treaty of Ryswick in 1697.

On the 31st of December 1697, the public debts of Great Britain, funded and unfunded, amounted to £21,515,742:13:8½. A great part of those debts had been contracted upon short anticipations, and some part upon annuities for lives; so that, before the 31st of December 1701, in less than four years, there had partly been paid off; and partly reverted to the public, the sum of £5,121,041:12:0¾d; a greater reduction of the public debt than has ever since been brought about in so short a period of time. The remaining debt, therefore, amounted only to £16,394,701:1:7¼d.

On December 31, 1697, Great Britain’s public debts, both funded and unfunded, totaled £21,515,742:13:8½. Much of the debt had been borrowed against revenues expected soon. Some had been borrowed through annuities payable for life. As a result, by December 31, 1701, less than four years later, £5,121,041:12:0¾d had been paid off or had ceased to be owed by the public. The public debt has never since been reduced by so much in so short a time. The remaining debt therefore amounted to only £16,394,701:1:7¼d.

In the war which began in 1702, and which was concluded by the treaty of Utrecht, the public debts were still more accumulated. On the 31st of December 1714, they amounted to £53,681,076:5:6½. The subscription into the South-sea fund, of the short and long annuities, increased the capital of the public debt; so that, on the 31st of December 1722, it amounted to £55,282,978:1:3 5/6. The reduction of the debt began in 1723, and went on so slowly, that, on the 31st of December 1739, during seventeen years-of profound peace, the whole sum paid off was no more than £8,328,554:17:11 3/12, the capital of the public debt, at that time, amounting to £46,954,623:3:4 7/12.

The public debt grew even more during the war that began in 1702 and ended with the treaty of Utrecht. On December 31, 1714, it amounted to £53,681,076:5:6½. The conversion of short and long annuities into the South-sea fund increased the principal of the public debt. As a result, on December 31, 1722, the debt amounted to £55,282,978:1:3 5/6. Repayment began in 1723 but proceeded very slowly. By December 31, 1739, after seventeen years of profound peace, only £8,328,554:17:11 3/12 had been paid off. The principal of the public debt then stood at £46,954,623:3:4 7/12.

The Spanish war, which began in 1739, and the French war which soon followed it, occasioned a further increase of the debt, which, on the 31st of December 1748, after the war had been concluded by the treaty of Aix-la-Chapelle, amounted to £78,293,313:1:10¾. The most profound peace, of 17 years continuance, had taken no more than £8,328,354, 17:11¼ from it. A war, of less than nine years continuance, added £31,338,689:18: 6 1/6 to it. {See James Postlethwaite’s History of the Public Revenue.}

The Spanish war began in 1739, and the French war soon followed. Both wars increased the debt further. By December 31, 1748, after the war had ended with the treaty of Aix-la-Chapelle, the debt amounted to £78,293,313:1:10¾. Seventeen years of the deepest peace had reduced the debt by no more than £8,328,354, 17:11¼. A war lasting less than nine years added £31,338,689:18: 6 1/6 to the debt. {See James Postlethwaite’s History of the Public Revenue.}

During the administration of Mr. Pelham, the interest of the public debt was reduced, or at least measures were taken for reducing it, from four to three per cent.; the sinking fund was increased, and some part of the public debt was paid off. In 1755, before the breaking out of the late war, the funded debt of Great Britain amounted to £72,289,675. On the 5th of January 1763, at the conclusion of the peace, the funded debt amounted debt to £122,603,336:8:2¼. The unfunded debt has been stated at £13,927,589:2:2. But the expense occasioned by the war did not end with the conclusion of the peace; so that, though on the 5th of January 1764, the funded debt was increased (partly by a new loan, and partly by funding a part of the unfunded debt) to £129,586,789:10:1¾, there still remained (according to the very well informed author of Considerations on the Trade and Finances of Great Britain) an unfunded debt, which was brought to account in that and the following year, of £9,975,017: 12:2 15/44d. In 1764, therefore, the public debt of Great Britain, funded and unfunded together, amounted, according to this author, to £139,561,807:2:4. The annuities for lives, too, which had been granted as premiums to the subscribers to the new loans in 1757, estimated at fourteen years purchase, were valued at £472,500; and the annuities for long terms of years, granted as premiums likewise, in 1761 and 1762, estimated at twenty-seven and a-half years purchase, were valued at £6,826,875. During a peace of about seven years continuance, the prudent and truly patriotic administration of Mr. Pelham was not able to pay off an old debt of six millions. During a war of nearly the same continuance, a new debt of more than seventy-five millions was contracted.

During Mr. Pelham’s administration, interest on the public debt was reduced from four to three percent, or at least steps were taken to reduce it. The sinking fund was increased, and part of the public debt was paid off. In 1755, before the recent war broke out, Great Britain’s funded debt amounted to £72,289,675. On 5 January 1763, when peace was concluded, the funded debt amounted to £122,603,336:8:2¼. The unfunded debt has been put at £13,927,589:2:2. But the costs of the war did not end with the peace. By 5 January 1764, the funded debt had increased to £129,586,789:10:1¾. This increase came partly from a new loan and partly from converting some unfunded debt into funded debt. Even so, unfunded debt remained. According to the very well informed author of Considerations on the Trade and Finances of Great Britain, £9,975,017:12:2 15/44d of unfunded debt was brought to account in 1764 and the following year. According to this author, Great Britain’s total public debt in 1764, funded and unfunded, amounted to £139,561,807:2:4. Life annuities had also been granted as premiums to those who subscribed to the new loans in 1757. Valued at fourteen years’ purchase, they were worth £472,500. Annuities for long terms had likewise been granted as premiums in 1761 and 1762. Valued at twenty-seven and a half years’ purchase, they were worth £6,826,875. During about seven years of peace, Mr. Pelham’s prudent and truly patriotic administration could not pay off six million pounds of old debt. During a war of nearly the same length, more than seventy-five million pounds of new debt was incurred.

On the 5th of January 1775, the funded debt of Great Britain amounted to £124,996,086, 1:6¼d. The unfunded, exclusive of a large civil-list debt, to £4,150,236:3:11 7/8. Both together, to £129,146,322:5:6. According to this account, the whole debt paid off, during eleven years of profound peace, amounted only to £10,415,476:16:9 7/8. Even this small reduction of debt, however, has not been all made from the savings out of the ordinary revenue of the state. Several extraneous sums, altogether independent of that ordinary revenue, have contributed towards it. Amongst these we may reckon an additional shilling in the pound land tax, for three years; the two millions received from the East-India company, as indemnification for their territorial acquisitions; and the one hundred and ten thousand pounds received from the bank for the renewal of their charter. To these must be added several other sums, which, as they arose out of the late war, ought perhaps to be considered as deductions from the expenses of it. The principal are,

On January 5, 1775, Great Britain’s funded debt amounted to £124,996,086, 1:6¼d. Its unfunded debt amounted to £4,150,236:3:11 7/8, excluding a large civil-list debt. Together, the two debts amounted to £129,146,322:5:6. According to this account, only £10,415,476:16:9 7/8 of debt had been paid off during eleven years of profound peace. Even this small reduction, however, did not come entirely from savings in the state’s ordinary revenue. Several other sums, entirely independent of that revenue, contributed to it. These included an additional shilling in the pound on the land tax for three years. They also included the two million pounds received from the East-India company as compensation for its territorial acquisitions. Another contribution was the one hundred and ten thousand pounds received from the bank for renewing its charter. Several other sums must be added to these. Because they arose from the recent war, they should perhaps be considered deductions from its expenses. The principal sums are:

If we add to this sum the balance of the earl of Chatham’s and Mr. Calcraft’s accounts, and other army savings of the same kind, together with what has been received from the bank, the East-India company, and the additional shilling in the pound land tax, the whole must be a good deal more than five millions. The debt, therefore, which, since the peace, has been paid out of the savings from the ordinary revenue of the state, has not, one year with another, amounted to half a million a-year. The sinking fund has, no doubt, been considerably augmented since the peace, by the debt which had been paid off, by the reduction of the redeemable four per cents to three per cents, and by the annuities for lives which have fallen in; and, if peace were to continue, a million, perhaps, might now be annually spared out of it towards the discharge of the debt. Another million, accordingly, was paid in the course of last year; but at the same time, a large civil-list debt was left unpaid, and we are now involved in a new war, which, in its progress, may prove as expensive as any of our former wars. {It has proved more expensive than any one of our former wars, and has involved us in an additional debt of more than one hundred millions. During a profound peace of eleven years, little more than ten millions of debt was paid; during a war of seven years, more than one hundred millions was contracted.} The new debt which will probably be contracted before the end of the next campaign, may, perhaps, be nearly equal to all the old debt which has been paid off from the savings out of the ordinary revenue of the state. It would be altogether chimerical, therefore, to expect that the public debt should ever be completely discharged, by any savings which are likely to be made from that ordinary revenue as it stands at present.

We must add the balance of the earl of Chatham’s and Mr. Calcraft’s accounts to this sum. We must also add other army savings of the same kind. Then there is what was received from the bank, the East-India company, and the additional shilling in the pound land tax. The total must be considerably more than five million. Since the peace, debt has been paid from savings in the state’s ordinary revenue. This has averaged less than half a million a year. The sinking fund has, no doubt, grown considerably since the peace. This is because debt has been paid off, redeemable four percent debts have been reduced to three percent, and life annuities have expired. If peace were to continue, perhaps a million could now be spared from the fund each year to pay off debt. Accordingly, another million was paid last year. But at the same time, a large civil-list debt was left unpaid. We are now involved in a new war, which may prove as expensive as any of our former wars. {It has proved more expensive than any of our former wars and has added more than one hundred million to our debt. During eleven years of profound peace, little more than ten million of debt was paid off. During seven years of war, more than one hundred million was borrowed.} Before the end of the next campaign, we will probably take on new debt. This may perhaps be nearly equal to all the old debt paid off from savings in the state’s ordinary revenue. It would therefore be entirely fanciful to expect the public debt ever to be paid off completely through likely savings from that revenue, as it now stands.

The public funds of the different indebted nations of Europe, particularly those of England, have, by one author, been represented as the accumulation of a great capital, superadded to the other capital of the country, by means of which its trade is extended, its manufactures are multiplied, and its lands cultivated and improved, much beyond what they could have been by means of that other capital only. He does not consider that the capital which the first creditors of the public advanced to government, was, from the moment in which he advanced it, a certain portion of the annual produce, turned away from serving in the function of a capital, to serve in that of a revenue; from maintaining productive labourers, to maintain unproductive ones, and to be spent and wasted, generally in the course of the year, without even the hope of any future reproduction. In return for the capital which they advanced, they obtained, indeed, an annuity of the public funds, in most cases, of more than equal value. This annuity, no doubt, replaced to them their capital, and enabled them to carry on their trade and business to the same, or, perhaps, to a greater extent than before; that is, they were enabled, either to borrow of other people a new capital, upon the credit of this annuity or, by selling it, to get from other people a new capital of their own, equal, or superior, to that which they had advanced to government. This new capital, however, which they in this manner either bought or borrowed of other people, must have existed in the country before, and must have been employed, as all capitals are, in maintaining productive labour. When it came into the hands of those who had advanced their money to government, though it was, in some respects, a new capital to them, it was not so to the country, but was only a capital withdrawn from certain employments, in order to be turned towards others. Though it replaced to them what they had advanced to government, it did not replace it to the country. Had they not advanced this capital to government, there would have been in the country two capitals, two portions of the annual produce, instead of one, employed in maintaining productive labour.

One author has described the public funds of indebted European nations, particularly England, as a great accumulation of capital. He claims that this capital is added to the country’s other capital. As a result, he says, trade expands, manufacturing grows, and land is cultivated and improved. All this happens far beyond what the country’s other capital alone could have achieved. He does not consider what happened to the capital that the first public creditors lent to the government. From the moment they lent it, that portion of annual production stopped serving as capital and began serving as revenue. Instead of supporting productive workers, it supported unproductive ones. It was generally spent and wasted within the year, without even the hope of producing anything in the future. In return for the capital they lent, the creditors did receive an annuity from the public funds. In most cases, it was worth more than the capital they had lent. The annuity undoubtedly replaced their capital. It enabled them to carry on their trade and business as before, or perhaps on a greater scale. They could use the annuity as security to borrow new capital from others. Or they could sell it and obtain new capital of their own. This capital could equal or exceed what they had lent to the government. But the new capital they bought or borrowed from others must already have existed in the country. Like all capital, it must have been employed in supporting productive labour. When it came into the hands of those who had lent money to the government, it was new capital for them in some respects. But it was not new capital for the country. It had merely been withdrawn from some uses and directed toward others. Though it replaced what the creditors had lent to the government, it did not replace that capital for the country. Had they not lent it to the government, the country would have had two capitals instead of one. Two portions of annual production would have been employed in supporting productive labour.

When, for defraying the expense of government, a revenue is raised within the year, from the produce of free or unmortgaged taxes, a certain portion of the revenue of private people is only turned away from maintaining one species of unproductive labour, towards maintaining another. Some part of what they pay in those taxes, might, no doubt, have been accumulated into capital, and consequently employed in maintaining productive labour; but the greater part would probably have been spent, and consequently employed in maintaining unproductive labour. The public expense, however, when defrayed in this manner, no doubt hinders, more or less, the further accumulation of new capital; but it does not necessarily occasion the destruction of any actually-existing capital.

When government expenses are paid from taxes raised within the year that are free or not pledged to debt, part of private income is simply redirected. It goes from supporting one kind of unproductive labor to supporting another. Some of the money people pay in these taxes might, no doubt, have been saved as capital. It would then have been used to support productive labor. But most of it would probably have been spent and used to support unproductive labor. Government spending paid for in this way undoubtedly slows the further accumulation of new capital, to some extent. But it does not necessarily destroy any capital that already exists.

When the public expense is defrayed by funding, it is defrayed by the annual destruction of some capital which had before existed in the country; by the perversion of some portion of the annual produce which had before been destined for the maintenance of productive labour, towards that of unproductive labour. As in this case, however, the taxes are lighter than they would have been, had a revenue sufficient for defraying the same expense been raised within the year; the private revenue of individuals is necessarily less burdened, and consequently their ability to save and accumulate some part of that revenue into capital, is a good deal less impaired. If the method of funding destroys more old capital, it, at the same time, hinders less the accumulation or acquisition of new capital, than that of defraying the public expense by a revenue raised within the year. Under the system of funding, the frugality and industry of private people can more easily repair the breaches which the waste and extravagance of government may occasionally make in the general capital of the society.

When public spending is financed by borrowing, some capital that already existed in the country is destroyed each year. Part of the annual output previously intended to support productive labor is diverted to support unproductive labor. Taxes are lighter, however, than they would be if enough revenue were raised within the year to cover the same expense. Individuals’ private income is therefore less burdened. As a result, their ability to save some of that income and add it to their capital is much less impaired. Financing public spending through borrowing destroys more existing capital than paying for it with revenue raised within the year. At the same time, it does less to hinder the accumulation or acquisition of new capital. Under a system of borrowing, private people can more easily repair the occasional damage that government waste and extravagance may do to society’s total capital. They can do so through thrift and hard work.

It is only during the continuance of war, however, that the system of funding has this advantage over the other system. Were the expense of war to be defrayed always by a revenue raised within the year, the taxes from which that extraordinary revenue was drawn would last no longer than the war. The ability of private people to accumulate, though less during the war, would have been greater during the peace, than under the system of funding. War would not necessarily have occasioned the destruction of any old capitals, and peace would have occasioned the accumulation of many more new. Wars would, in general, be more speedily concluded, and less wantonly undertaken. The people feeling, during continuance of war, the complete burden of it, would soon grow weary of it; and government, in order to humour them, would not be under the necessity of carrying it on longer than it was necessary to do so. The foresight of the heavy and unavoidable burdens of war would hinder the people from wantonly calling for it when there was no real or solid interest to fight for. The seasons during which the ability of private people to accumulate was somewhat impaired, would occur more rarely, and be of shorter continuance. Those, on the contrary, during which that ability was in the highest vigour would be of much longer duration than they can well be under the system of funding.

However, borrowing has this advantage over the other system only while a war lasts. Suppose the cost of war were always paid from revenue raised within the year. The taxes providing that extra revenue would then last no longer than the war. Private people would be less able to build up capital during the war. But during peace, they would be better able to do so than under a system of borrowing. War would not necessarily destroy any existing capital, and peace would lead to much more new capital being built up. Wars would generally end sooner and be started less recklessly. People would feel the full burden of war while it lasted and would soon grow weary of it. To satisfy them, the government would not need to continue a war longer than necessary. Knowing that war would bring heavy and unavoidable burdens, people would not recklessly demand it without a real and substantial interest to fight for. The periods when private people were somewhat less able to build up capital would be rarer and shorter. In contrast, periods when they were best able to do so would last much longer than under a system of borrowing.

When funding, besides, has made a certain progress, the multiplication of taxes which it brings along with it, sometimes impairs as much the ability of private people to accumulate, even in time of peace, as the other system would in time of war. The peace revenue of Great Britain amounts at present to more than ten millions a-year. If free and unmortgaged, it might be sufficient, with proper management, and without contracting a shilling of new debt, to carry on the most vigorous war. The private revenue of the inhabitants of Great Britain is at present as much incumbered in time of peace, their ability to accumulate is as much impaired, as it would have been in the time of the most expensive war, had the pernicious system of funding never been adopted.

Moreover, once the system of funding through public debt has advanced far enough, it brings a growing number of taxes. These taxes sometimes do as much to reduce private individuals’ ability to save in peacetime as the other system would in wartime. Great Britain’s peacetime revenue now amounts to more than ten million pounds a year. If that revenue were free of debt obligations, it might be enough to conduct the most vigorous war with proper management. There would be no need to incur a shilling of new debt. The private income of Great Britain’s inhabitants is now as burdened in peacetime as it would have been during the most expensive war. Their ability to save is just as impaired as it would have been then, had the harmful system of funding never been adopted.

In the payment of the interest of the public debt, it has been said, it is the right hand which pays the left. The money does not go out of the country. It is only a part of the revenue of one set of the inhabitants which is transferred to another; and the nation is not a farthing the poorer. This apology is founded altogether in the sophistry of the mercantile system; and, after the long examination which I have already bestowed upon that system, it may, perhaps, be unnecessary to say anything further about it. It supposes, besides, that the whole public debt is owing to the inhabitants of the country, which happens not to be true; the Dutch, as well as several other foreign nations, having a very considerable share in our public funds. But though the whole debt were owing to the inhabitants of the country, it would not, upon that account, be less pernicious.

It has been said that paying interest on the public debt is like the right hand paying the left. The money does not leave the country. It merely transfers part of the income of one group of inhabitants to another. The nation is not a penny poorer. This defense rests entirely on the false reasoning of the mercantile system. I have already examined that system at length, so it may perhaps be unnecessary to say anything more about it. The defense also assumes that the whole public debt is owed to the country’s inhabitants. That is not true. The Dutch, as well as several other foreign nations, hold a very considerable share of our public debt. But even if the whole debt were owed to the country’s inhabitants, it would be no less harmful.

Land and capital stock are the two original sources of all revenue, both private and public. Capital stock pays the wages of productive labour, whether employed in agriculture, manufactures, or commerce. The management of those two original sources of revenue belongs to two different sets of people; the proprietors of land, and the owners or employers of capital stock.

Land and capital are the two original sources of all income, both private and public. Capital pays the wages of productive workers in agriculture, manufacturing, and commerce. Two different groups manage these original sources of income: landowners and those who own or use capital.

The proprietor of land is interested, for the sake of his own revenue, to keep his estate in as good condition as he can, by building and repairing his tenants houses, by making and maintaining the necessary drains and inclosures, and all those other expensive improvements which it properly belongs to the landlord to make and maintain. But, by different land taxes, the revenue of the landlord may be so much diminished, and, by different duties upon the necessaries and conveniencies of life, that diminished revenue may be rendered of so little real value, that he may find himself altogether unable to make or maintain those expensive improvements. When the landlord, however, ceases to do his part, it is altogether impossible that the tenant should continue to do his. As the distress of the landlord increases, the agriculture of the country must necessarily decline.

A landowner has an interest in keeping his estate in the best condition he can, for the sake of his own income. He does this by building and repairing his tenants' houses and making and maintaining the necessary drains and fences. He also makes and maintains all the other costly improvements that are properly the landlord's responsibility. But various land taxes may reduce the landlord's income substantially. Duties on the necessities and comforts of life may also make that reduced income worth so little that he cannot afford to make or maintain those costly improvements. Once the landlord stops doing his part, however, it is impossible for the tenant to continue doing his. As the landlord's financial hardship increases, the country's agriculture must decline.

When, by different taxes upon the necessaries and conveniencies of life, the owners and employers of capital stock find, that whatever revenue they derive from it, will not, in a particular country, purchase the same quantity of those necessaries and conveniencies which an equal revenue would in almost any other, they will be disposed to remove to some other. And when, in order to raise those taxes, all or the greater part of merchants and manufacturers, that is, all or the greater part of the employers of great capitals, come to be continually exposed to the mortifying and vexatious visits of the tax-gatherers, this disposition to remove will soon be changed into an actual removing. The industry of the country will necessarily fall with the removal of the capital which supported it, and the ruin of trade and manufactures will follow the declension of agriculture.

Taxes on the necessities and comforts of life may make owners and employers of capital find that their income buys less in one country than an equal income would in almost any other. If so, they will be inclined to move elsewhere. To collect these taxes, tax collectors may continually subject all or most merchants and manufacturers to humiliating and irritating visits. These merchants and manufacturers employ most of the country’s great capitals. When this happens, their inclination to move will soon lead them to leave. The country’s industry will necessarily decline as the capital supporting it leaves. The ruin of trade and manufacturing will follow the decline of agriculture.

To transfer from the owners of those two great sources of revenue, land, and capital stock, from the persons immediately interested in the good condition of every particular portion of land, and in the good management of every particular portion of capital stock, to another set of persons (the creditors of the public, who have no such particular interest), the greater part of the revenue arising from either, must, in the long-run, occasion both the neglect of land, and the waste or removal of capital stock. A creditor of the public has, no doubt, a general interest in the prosperity of the agriculture, manufactures, and commerce of the country; and consequently in the good condition of its land, and in the good management of its capital stock. Should there be any general failure or declension in any of these things, the produce of the different taxes might no longer be sufficient to pay him the annuity or interest which is due to him. But a creditor of the public, considered merely as such, has no interest in the good condition of any particular portion of land, or in the good management of any particular portion of capital stock. As a creditor of the public, he has no knowledge of any such particular portion. He has no inspection of it. He can have no care about it. Its ruin may in some cases be unknown to him, and cannot directly affect him.

Land and capital are two great sources of income. Their owners have a direct interest in keeping each piece of land in good condition and managing each portion of capital well. Suppose most of the income from either source is transferred to public creditors, who have no such direct interest. In the long run, this must cause land to be neglected and capital to be wasted or moved elsewhere. A public creditor certainly has a general interest in the prosperity of the country’s agriculture, manufacturing, and trade. The creditor therefore also has a general interest in the condition of its land and the management of its capital. If any of these suffer a general failure or decline, tax revenues might no longer cover the annuity or interest owed to the creditor. But a public creditor, simply as a creditor, has no interest in the condition of any particular piece of land or the management of any particular portion of capital. As a public creditor, the person knows nothing of any such piece of land or portion of capital. The creditor does not inspect it and can have no concern for it. In some cases, its ruin may go unnoticed by the creditor, and it cannot directly affect the creditor.

The practice of funding has gradually enfeebled every state which has adopted it. The Italian republics seem to have begun it. Genoa and Venice, the only two remaining which can pretend to an independent existence, have both been enfeebled by it. Spain seems to have learned the practice from the Italian republics, and (its taxes being probably less judicious than theirs) it has, in proportion to its natural strength, been-still more enfeebled. The debts of Spain are of very old standing. It was deeply in debt before the end of the sixteenth century, about a hundred years before England owed a shilling. France, notwithstanding all its natural resources, languishes under an oppressive load of the same kind. The republic of the United Provinces is as much enfeebled by its debts as either Genoa or Venice. Is it likely that, in Great Britain alone, a practice, which has brought either weakness or dissolution into every other country, should prove altogether innocent?

The practice of funding public debt has gradually weakened every state that has adopted it. The Italian republics seem to have started it. Genoa and Venice are the only two left that can claim to be independent, and both have been weakened by it. Spain seems to have learned the practice from the Italian republics. Its taxes were probably less wisely designed than theirs, and it has been weakened even more in proportion to its natural strength. Spain’s debts go back a long way. It was deeply in debt before the end of the sixteenth century, about a hundred years before England owed a shilling. Despite all its natural resources, France languishes under an oppressive burden of debt. The republic of the United Provinces is as weakened by its debts as either Genoa or Venice. Is it likely that Great Britain alone will escape harm from a practice that has weakened or destroyed every other country that adopted it?

The system of taxation established in those different countries, it may be said, is inferior to that of England. I believe it is so. But it ought to be remembered, that when the wisest government has exhausted all the proper subjects of taxation, it must, in cases of urgent necessity, have recourse to improper ones. The wise republic of Holland has, upon some occasions, been obliged to have recourse to taxes as inconvenient as the greater part of those of Spain. Another war, begun before any considerable liberation of the public revenue had been brought about, and growing in its progress as expensive as the last war, may, from irresistible necessity, render the British system of taxation as oppressive as that of Holland, or even as that of Spain. To the honour of our present system of taxation, indeed, it has hitherto given so little embarrassment to industry, that, during the course even of the most expensive wars, the frugality and good conduct of individuals seem to have been able, by saving and accumulation, to repair all the breaches which the waste and extravagance of government had made in the general capital of the society. At the conclusion of the late war, the most expensive that Great Britain ever waged, her agriculture was as flourishing, her manufacturers as numerous and as fully employed, and her commerce as extensive, as they had ever been before. The capital, therefore, which supported all those different branches of industry, must have been equal to what it had ever been before. Since the peace, agriculture has been still further improved; the rents of houses have risen in every town and village of the country, a proof of the increasing wealth and revenue of the people; and the annual amount of the greater part of the old taxes, of the principal branches of the excise and customs, in particular, has been continually increasing, an equally clear proof of an increasing consumption, and consequently of an increasing produce, which could alone support that consumption. Great Britain seems to support with ease, a burden which, half a century ago, nobody believed her capable of supporting, Let us not, however, upon this account, rashly conclude that she is capable of supporting any burden; nor even be too confident that she could support, without great distress, a burden a little greater than what has already been laid upon her.

It may be said that the tax systems in those countries are worse than England's. I believe they are. But even the wisest government may exhaust all suitable sources of tax revenue. In urgent need, it must then turn to unsuitable ones. The wise republic of Holland has sometimes had to impose taxes as burdensome as most of those in Spain. Another war might begin before any substantial part of public revenue has been freed from existing commitments. If it grew as expensive as the last war, necessity might force Britain to make its taxes as oppressive as Holland's, or even Spain's. To the credit of our present tax system, it has so far placed little burden on industry. Even during the most expensive wars, individuals have shown thrift and good judgment. Through saving and accumulation, they seem to have repaired all the damage that government waste and extravagance did to society's total capital. At the end of the last war, the most expensive Great Britain had ever fought, her agriculture was thriving. Her manufacturers were as numerous and as fully employed as ever, and her commerce was as extensive. The capital supporting all those branches of industry must therefore have been as great as ever. Since peace returned, agriculture has improved still further. House rents have risen in every town and village in the country. This shows that people's wealth and income have increased. The annual revenue from most of the old taxes has also continued to rise. This is especially true of the main excise and customs duties. That increase is equally clear proof of growing consumption and, therefore, of growing production. Only increased production could support increased consumption. Great Britain seems to bear easily a burden that no one believed she could bear half a century ago. But let us not rashly conclude that she can bear any burden. Nor should we be too confident that she could bear even a slightly greater burden without great distress.

When national debts have once been accumulated to a certain degree, there is scarce, I believe, a single instance of their having been fairly and completely paid. The liberation of the public revenue, if it has ever been brought about at all, has always been brought about by a bankruptcy; sometimes by an avowed one, though frequently by a pretended payment.

Once national debts have grown to a certain level, I believe they have almost never been fully and honestly paid. If public revenue has ever been freed from debt, it has always been through bankruptcy. Sometimes the bankruptcy has been openly declared, though often it has been disguised as payment.

The raising of the denomination of the coin has been the most usual expedient by which a real public bankruptcy has been disguised under the appearance of a pretended payment. If a sixpence, for example, should, either by act of parliament or royal proclamation, be raised to the denomination of a shilling, and twenty sixpences to that of a pound sterling; the person who, under the old denomination, had borrowed twenty shillings, or near four ounces of silver, would, under the new, pay with twenty sixpences, or with something less than two ounces. A national debt of about a hundred and twenty-eight millions, near the capital of the funded and unfunded debt of Great Britain, might, in this manner, be paid with about sixty-four millions of our present money. It would, indeed, be a pretended payment only, and the creditors of the public would really be defrauded of ten shillings in the pound of what was due to them. The calamity, too, would extend much further than to the creditors of the public, and those of every private person would suffer a proportionable loss; and this without any advantage, but in most cases with a great additional loss, to the creditors of the public. If the creditors of the public, indeed, were generally much in debt to other people, they might in some measure compensate their loss by paying their creditors in the same coin in which the public had paid them. But in most countries, the creditors of the public are, the greater part of them, wealthy people, who stand more in the relation of creditors than in that of debtors, towards the rest of their fellow citizens. A pretended payment of this kind, therefore, instead of alleviating, aggravates, in most cases, the loss of the creditors of the public; and, without any advantage to the public, extends the calamity to a great number of other innocent people. It occasions a general and most pernicious subversion of the fortunes of private people; enriching, in most cases, the idle and profuse debtor, at the expense of the industrious and frugal creditor; and transporting a great part of the national capital from the hands which were likely to increase and improve it, to those who are likely to dissipate and destroy it. When it becomes necessary for a state to declare itself bankrupt, in the same manner as when it becomes necessary for an individual to do so, a fair, open, and avowed bankruptcy, is always the measure which is both least dishonourable to the debtor, and least hurtful to the creditor. The honour of a state is surely very poorly provided for, when, in order to cover the disgrace of a real bankruptcy, it has recourse to a juggling trick of this kind, so easily seen through, and at the same time so extremely pernicious.

Raising the face value of coins has been the most common way to disguise a real public bankruptcy as a payment. Suppose, for example, that Parliament or a royal proclamation made a sixpence worth a shilling. Twenty sixpences would then be worth one pound sterling. A person who had borrowed twenty shillings under the old values had borrowed nearly four ounces of silver. Under the new values, that person would repay the debt with twenty sixpences, or less than two ounces. A national debt of about 128 million pounds could be paid in this way with about 64 million pounds of our present money. That debt is close to the principal of Great Britain's funded and unfunded debt. But this would only be a pretend payment. The public's creditors would in fact be cheated of ten shillings for every pound they were owed. The harm would also extend much further than the public's creditors. The creditors of every private person would suffer a proportional loss. This would bring no benefit to the public's creditors. In most cases, it would cause them a great additional loss. If the public's creditors generally owed large sums to others, they might partly make up for their loss. They could pay their own creditors in the same coin the public had paid them. But in most countries, the public's creditors are mostly wealthy people. They are more often creditors than debtors to their fellow citizens. So this kind of pretend payment usually makes the public creditors' loss worse rather than easing it. It also spreads the harm to many other innocent people, without benefiting the public. Such a payment causes a general and highly destructive upheaval in private fortunes. In most cases, it enriches the idle and extravagant debtor at the expense of the hard-working and thrifty creditor. It transfers a large part of the nation's capital from those likely to increase and improve it to those likely to squander and destroy it. When a state must declare bankruptcy, it should do so fairly, openly, and frankly. The same is true when an individual must declare bankruptcy. This is always the least dishonorable course for the debtor and the least harmful to the creditor. A state does little to protect its honor by resorting to such a trick to hide the disgrace of a real bankruptcy. The trick is so easy to see through and, at the same time, so extremely harmful.

Almost all states, however, ancient as well as modern, when reduced to this necessity, have, upon some occasions, played this very juggling trick. The Romans, at the end of the first Punic war, reduced the As, the coin or denomination by which they computed the value of all their other coins, from containing twelve ounces of copper, to contain only two ounces; that is, they raised two ounces of copper to a denomination which had always before expressed the value of twelve ounces. The republic was, in this manner, enabled to pay the great debts which it had contracted with the sixth part of what it really owed. So sudden and so great a bankruptcy, we should in the present times be apt to imagine, must have occasioned a very violent popular clamour. It does not appear to have occasioned any. The law which enacted it was, like all other laws relating to the coin, introduced and carried through the assembly of the people by a tribune, and was probably a very popular law. In Rome, as in all other ancient republics, the poor people were constantly in debt to the rich and the great, who, in order to secure their votes at the annual elections, used to lend them money at exorbitant interest, which, being never paid, soon accumulated into a sum too great either for the debtor to pay, or for any body else to pay for him. The debtor, for fear of a very severe execution, was obliged, without any further gratuity, to vote for the candidate whom the creditor recommended. In spite of all the laws against bribery and corruption, the bounty of the candidates, together with the occasional distributions of coin which were ordered by the senate, were the principal funds from which, during the latter times of the Roman republic, the poorer citizens derived their subsistence. To deliver themselves from this subjection to their creditors, the poorer citizens were continually calling out, either for an entire abolition of debts, or for what they called new tables; that is, for a law which should entitle them to a complete acquittance, upon paying only a certain proportion of their accumulated debts. The law which reduced the coin of all denominations to a sixth part of its former value, as it enabled them to pay their debts with a sixth part of what they really owed, was equivalent to the most advantageous new tables. In order to satisfy the people, the rich and the great were, upon several different occasions, obliged to consent to laws, both for abolishing debts, and for introducing new tables; and they probably were induced to consent to this law, partly for the same reason, and partly that, by liberating the public revenue, they might restore vigour to that government, of which they themselves had the principal direction. An operation of this kind would at once reduce a debt of £128,000,000 to £21,333,333:6:8. In the course of the second Punic war, the As was still further reduced, first, from two ounces of copper to one ounce, and afterwards from one ounce to half an ounce; that is, to the twenty-fourth part of its original value. By combining the three Roman operations into one, a debt of a hundred and twenty-eight millions of our present money, might in this manner be reduced all at once to a debt of £5,333,333:6:8. Even the enormous debt of Great Britain might in this manner soon be paid.

Almost all states, however, both ancient and modern, have sometimes played this same juggling trick when forced by necessity. At the end of the first Punic war, the Romans reduced the copper content of the As from twelve ounces to two. The As was the coin, or denomination, they used to calculate the value of all their other coins. They gave two ounces of copper a denomination that had always before represented the value of twelve ounces. In this way, the republic could pay its large debts with one sixth of what it really owed. Today, we might expect such a sudden and massive bankruptcy to cause a furious public outcry. Yet it appears to have caused none. Like all other laws concerning coinage, the law was introduced and carried through the people's assembly by a tribune. It was probably a very popular law. In Rome, as in all other ancient republics, poor people were constantly in debt to the rich and powerful. To secure their votes in the annual elections, the rich and powerful used to lend them money at exorbitant interest. The interest was never paid. It soon accumulated into a sum too large for the debtor or anyone else to pay. Fearing severe enforcement of the debt, the debtor had to vote for the creditor's chosen candidate without any further payment. Despite all the laws against bribery and corruption, candidates' gifts were a principal source of support for poorer citizens during the later years of the Roman republic. Occasional distributions of money ordered by the senate were another. To free themselves from this dependence on their creditors, poorer citizens constantly demanded either a complete cancellation of debts or what they called new tables. These were laws that entitled them to complete release from their debts after paying only a certain proportion of what they had accumulated. The law reduced every denomination of coin to one sixth of its former value. It thus allowed debtors to pay their debts with one sixth of what they really owed. It was equivalent to the most advantageous new tables. On several occasions, the rich and powerful had to agree to laws cancelling debts and introducing new tables to satisfy the people. They were probably persuaded to agree to this law partly for the same reason. They probably also hoped that relieving the public finances would restore strength to the government they themselves chiefly directed. An operation of this kind would immediately reduce a debt of £128,000,000 to £21,333,333:6:8. During the second Punic war, the As was reduced still further, first from two ounces of copper to one, and then from one ounce to half an ounce. This brought it to one twenty-fourth of its original value. Combining the three Roman operations into one could reduce a debt of 128 million in our present money at once to £5,333,333:6:8. Even the enormous debt of Great Britain could soon be paid in this way.

By means of such expedients, the coin of, I believe, all nations, has been gradually reduced more and more below its original value, and the same nominal sum has been gradually brought to contain a smaller and a smaller quantity of silver.

Through such measures, the coinage of all nations, I believe, has gradually fallen further below its original value. As a result, the same nominal sum has gradually come to contain less and less silver.

Nations have sometimes, for the same purpose, adulterated the standard of their coin; that is, have mixed a greater quantity of alloy in it. If in the pound weight of our silver coin, for example, instead of eighteen penny-weight, according to the present standard, there were mixed eight ounces of alloy; a pound sterling, or twenty shillings of such coin, would be worth little more than six shillings and eightpence of our present money. The quantity of silver contained in six shillings and eightpence of our present money, would thus be raised very nearly to the denomination of a pound sterling. The adulteration of the standard has exactly the same effect with what the French call an augmentation, or a direct raising of the denomination of the coin.

For the same purpose, nations have sometimes debased their coinage by mixing more alloy into it. For example, a pound of our silver coin currently contains eighteen pennyweights of alloy. Suppose it contained eight ounces of alloy instead. A pound sterling, or twenty shillings, in such coins would be worth little more than six shillings and eightpence in our present money. The amount of silver in six shillings and eightpence of our present money would thus be called nearly a pound sterling. Debasing the coinage has exactly the same effect as what the French call an augmentation, or directly raising the stated value of coins.

An augmentation, or a direct raising of the denomination of the coin, always is, and from its nature must be, an open and avowed operation. By means of it, pieces of a smaller weight and bulk are called by the same name, which had before been given to pieces of a greater weight and bulk. The adulteration of the standard, on the contrary, has generally been a concealed operation. By means of it, pieces are issued from the mint, of the same denomination, and, as nearly as could be contrived, of the same weight, bulk, and appearance, with pieces which had been current before of much greater value. When king John of France, {See Du Cange Glossary, voce Moneta; the Benedictine Edition.} in order to pay his debts, adulterated his coin, all the officers of his mint were sworn to secrecy. Both operations are unjust. But a simple augmentation is an injustice of open violence; whereas an adulteration is an injustice of treacherous fraud. This latter operation, therefore, as soon as it has been discovered, and it could never be concealed very long, has always excited much greater indignation than the former. The coin, after any considerable augmentation, has very seldom been brought back to its former weight; but after the greatest adulterations, it has almost always been brought back to its former fineness. It has scarce ever happened, that the fury and indignation of the people could otherwise be appeased.

An increase in the denomination of coins, meaning a direct raising of their stated value, is always open and declared. By its nature, it must be. Smaller, lighter coins are given the same name previously given to larger, heavier ones. By contrast, debasing the standard has generally been concealed. The mint issues coins with the same denomination as earlier coins of much greater value. The new coins are also made to match the earlier ones in weight, size, and appearance as closely as possible. When King John of France debased his coins to pay his debts, all his mint officers were sworn to secrecy. {See Du Cange Glossary, under Moneta, the Benedictine Edition.} Both actions are unjust. But simply raising a coin’s denomination is an injustice carried out through open force. Debasing it, by contrast, is an injustice carried out through treacherous fraud. Debasement could never be concealed for very long. Once discovered, it has always aroused much greater indignation than raising the denomination. After any considerable increase in denomination, coins have very seldom been restored to their former weight. But after even the worst debasements, they have almost always been restored to their former purity. The people’s fury and indignation could hardly ever be calmed otherwise.

In the end of the reign of Henry VIII., and in the beginning of that of Edward VI., the English coin was not only raised in its denomination, but adulterated in its standard. The like frauds were practised in Scotland during the minority of James VI. They have occasionally been practised in most other countries.

Near the end of Henry VIII’s reign and the beginning of Edward VI’s, English coins were given a higher face value. Their precious metal content was also reduced. Similar frauds were practiced in Scotland while James VI was a minor. Such frauds have occasionally been practiced in most other countries.

That the public revenue of Great Britain can never be completely liberated, or even that any considerable progress can ever be made towards that liberation, while the surplus of that revenue, or what is over and above defraying the annual expense of the peace establishment, is so very small, it seems altogether in vain to expect. That liberation, it is evident, can never be brought about, without either some very considerable augmentation of the public revenue, or some equally considerable reduction of the public expense.

It seems entirely futile to expect Great Britain’s public revenue ever to be fully freed, or even to make considerable progress toward freeing it, while the surplus remains so small. This surplus is what remains after paying the annual expenses of the peacetime establishment. Clearly, the public revenue can never be freed without either a very substantial increase in revenue or an equally substantial reduction in public spending.

A more equal land tax, a more equal tax upon the rent of houses, and such alterations in the present system of customs and excise as those which have been mentioned in the foregoing chapter, might, perhaps, without increasing the burden of the greater part of the people, but only distributing the weight of it more equally upon the whole, produce a considerable augmentation of revenue. The most sanguine projector, however, could scarce flatter himself, that any augmentation of this kind would be such as could give any reasonable hopes, either of liberating the public revenue altogether, or even of making such progress towards that liberation in time of peace, as either to prevent or to compensate the further accumulation of the public debt in the next war.

A fairer land tax and a fairer tax on house rents might produce considerably more revenue. So might changes to the current system of customs and excise taxes, like those mentioned in the previous chapter. Perhaps these measures would not increase the burden on most people, but would only spread it more equally across everyone. Even the most optimistic planner, however, could hardly expect such an increase to free public revenue from debt altogether. Nor could such a planner reasonably hope to make enough progress toward freeing it in peacetime to prevent or offset the further growth of public debt in the next war.

By extending the British system of taxation to all the different provinces of the empire, inhabited by people either of British or European extraction, a much greater augmentation of revenue might be expected. This, however, could scarce, perhaps, be done, consistently with the principles of the British constitution, without admitting into the British parliament, or, if you will, into the states-general of the British empire, a fair and equal representation of all those different provinces; that of each province bearing the same proportion to the produce of its taxes, as the representation of Great Britain might bear to the produce of the taxes levied upon Great Britain. The private interest of many powerful individuals, the confirmed prejudices of great bodies of people, seem, indeed, at present, to oppose to so great a change, such obstacles as it may be very difficult, perhaps altogether impossible, to surmount. Without, however, pretending to determine whether such a union be practicable or impracticable, it may not, perhaps, be improper, in a speculative work of this kind, to consider how far the British system of taxation might be applicable to all the different provinces of the empire; what revenue might be expected from it, if so applied; and in what manner a general union of this kind might be likely to affect the happiness and prosperity of the different provinces comprehended within it. Such a speculation, can, at worst, be regarded but as a new Utopia, less amusing, certainly, but no more useless and chimerical than the old one.

Extending the British tax system to all provinces of the empire inhabited by people of British or European descent might greatly increase revenue. But this could perhaps hardly be done consistently with the principles of the British constitution without giving all those provinces fair and equal representation. They would need representation in the British parliament, or, if you prefer, in the states-general of the British empire. Each province’s representation would need to be proportional to its tax revenue, just as Great Britain’s representation would be proportional to its tax revenue. The private interests of many powerful individuals and the entrenched prejudices of large groups of people seem to stand in the way of such a great change. These obstacles may be very difficult, perhaps altogether impossible, to overcome. But I will not pretend to decide whether such a union is practicable. In a speculative work of this kind, it may still be appropriate to consider how far the British tax system could be applied to all the provinces of the empire. We may also consider what revenue it might produce if applied to them. And we may consider how such a general union might affect the happiness and prosperity of the provinces included in it. At worst, such speculation can only be regarded as a new Utopia, certainly less amusing, but no more useless and fanciful than the old one.

The land-tax, the stamp duties, and the different duties of customs and excise, constitute the four principal branches of the British taxes.

The four main types of British taxes are the land tax, stamp duties, customs duties, and excise duties.

Ireland is certainly as able, and our American and West India plantations more able, to pay a land tax, than Great Britain. Where the landlord is subject neither to tythe nor poor’s rate, he must certainly be more able to pay such a tax, than where he is subject to both those other burdens. The tythe, where there is no modus, and where it is levied in kind, diminishes more what would otherwise be the rent of the landlord, than a land tax which really amounted to five shillings in the pound. Such a tythe will be found, in most cases, to amount to more than a fourth part of the real rent of the land, or of what remains after replacing completely the capital of the farmer, together with his reasonable profit. If all moduses and all impropriations were taken away, the complete church tythe of Great Britain and Ireland could not well be estimated at less than six or seven millions. If there was no tythe either in Great Britain or Ireland, the landlords could afford to pay six or seven millions additional land tax, without being more burdened than a very great part of them are at present. America pays no tythe, and could, therefore, very well afford to pay a land tax. The lands in America and the West Indies, indeed, are, in general, not tenanted nor leased out to farmers. They could not, therefore, be assessed according to any rent roll. But neither were the lands of Great Britain, in the 4th of William and Mary, assessed according to any rent roll, but according to a very loose and inaccurate estimation. The lands in America might be assessed either in the same manner, or according to an equitable valuation, in consequence of an accurate survey, like that which was lately made in the Milanese, and in the dominions of Austria, Prussia, and Sardinia.

Ireland is certainly as able as Great Britain to pay a land tax. Our American and West India plantations are even more able to pay one. A landlord who pays neither tithes nor poor rates must be more able to pay a land tax than one who pays both. Where there is no modus, and the tithe is collected in produce, it reduces the landlord’s rent considerably. It reduces the rent more than a land tax that actually amounted to five shillings in the pound. In most cases, such a tithe amounts to more than a quarter of the land’s real rent. This is what remains after fully replacing the farmer’s capital and allowing him a reasonable profit. If all moduses and impropriations were abolished, the full church tithe of Great Britain and Ireland could hardly be estimated at less than six or seven million. If there were no tithe in either country, landlords could afford to pay six or seven million more in land tax. They would be no more burdened than a very large proportion of them are now. America pays no tithe and could therefore easily afford to pay a land tax. The lands in America and the West Indies are, in general, neither occupied by tenants nor leased to farmers. They could not, therefore, be assessed according to a rent roll. But in the fourth year of William and Mary, the lands of Great Britain were not assessed according to a rent roll either. They were assessed according to a very loose and inaccurate estimate. The lands in America might be assessed in the same way. Or they might be assessed by a fair valuation based on an accurate survey. Such surveys were recently made in the Milanese and in the dominions of Austria, Prussia, and Sardinia.

Stamp duties, it is evident, might be levied without any variation, in all countries where the forms of law process, and the deeds by which property, both real and personal, is transferred, are the same, or nearly the same.

Clearly, stamp duties could be charged at the same rates in all countries with the same or nearly the same legal procedures and documents for transferring real estate and personal property.

The extension of the custom-house laws of Great Britain to Ireland and the plantations, provided it was accompanied, as in justice it ought to be, with an extension of the freedom of trade, would be in the highest degree advantageous to both. All the invidious restraints which at present oppress the trade of Ireland, the distinction between the enumerated and non-enumerated commodities of America, would be entirely at an end. The countries north of Cape Finisterre would be as open to every part of the produce of America, as those south of that cape are to some parts of that produce at present. The trade between all the different parts of the British empire would, in consequence of this uniformity in the custom-house laws, be as free as the coasting trade of Great Britain is at present. The British empire would thus afford, within itself, an immense internal market for every part of the produce of all its different provinces. So great an extension of market would soon compensate, both to Ireland and the plantations, all that they could suffer from the increase of the duties of customs.

Extending Great Britain’s customs laws to Ireland and the plantations would greatly benefit both. But this would require extending freedom of trade as well, as justice demands. All the unfair restrictions that now burden Ireland’s trade would end. So would the distinction between America’s enumerated and non-enumerated goods. Countries north of Cape Finisterre would be open to every kind of American produce. At present, countries south of the cape are open to only some kinds. With uniform customs laws, trade among all parts of the British empire would be as free as Great Britain’s coastal trade is now. The British empire would thus provide a vast internal market for all the produce of its different provinces. This greatly expanded market would soon compensate Ireland and the plantations for all they might suffer from increased customs duties.

The excise is the only part of the British system of taxation, which would require to be varied in any respect, according as it was applied to the different provinces of the empire. It might be applied to Ireland without any variation; the produce and consumption of that kingdom being exactly of the same nature with those of Great Britain. In its application to America and the West Indies, of which the produce and consumption are so very different from those of Great Britain, some modification might be necessary, in the same manner as in its application to the cyder and beer counties of England.

The excise tax is the only part of the British tax system that would need to vary across the empire’s provinces. It could be applied to Ireland without any changes. Ireland’s production and consumption are exactly the same in nature as those of Great Britain. America and the West Indies produce and consume very different things from Great Britain. So some changes to the excise tax might be necessary there, just as in England’s cider and beer counties.

A fermented liquor, for example, which is called beer, but which, as it is made of molasses, bears very little resemblance to our beer, makes a considerable part of the common drink of the people in America. This liquor, as it can be kept only for a few days, cannot, like our beer, be prepared and stored up for sale in great breweries; but every private family must brew it for their own use, in the same manner as they cook their victuals. But to subject every private family to the odious visits and examination of the tax-gatherers, in the same manner as we subject the keepers of ale-houses and the brewers for public sale, would be altogether inconsistent with liberty. If, for the sake of equality, it was thought necessary to lay a tax upon this liquor, it might be taxed by taxing the material of which it is made, either at the place of manufacture, or, if the circumstances of the trade rendered such an excise improper, by laying a duty upon its importation into the colony in which it was to be consumed. Besides the duty of one penny a-gallon imposed by the British parliament upon the importation of molasses into America, there is a provincial tax of this kind upon their importation into Massachusetts Bay, in ships belonging to any other colony, of eight-pence the hogshead; and another upon their importation from the northern colonies into South Carolina, of five-pence the gallon. Or, if neither of these methods was found convenient, each family might compound for its consumption of this liquor, either according to the number of persons of which it consisted, in the same manner as private families compound for the malt tax in England; or according to the different ages and sexes of those persons, in the same manner as several different taxes are levied in Holland; or, nearly as Sir Matthew Decker proposes, that all taxes upon consumable commodities should be levied in England. This mode of taxation, it has already been observed, when applied to objects of a speedy consumption, is not a very convenient one. It might be adopted, however, in cases where no better could be done.

A fermented drink called beer, for example, makes up a considerable part of what people in America commonly drink. But because it is made from molasses, it bears little resemblance to our beer. The drink keeps for only a few days. So, unlike our beer, it cannot be made and stored for sale in large breweries. Instead, every family must brew it for its own use, just as it cooks its own food. But subjecting every family to the hateful visits and inspections of tax collectors would be entirely inconsistent with liberty. We do subject alehouse keepers and brewers who sell to the public to such inspections. If a tax on this drink were thought necessary for the sake of equality, its main ingredient could be taxed. It could be taxed where it is made. Or, if trade conditions made such an excise tax unsuitable, a duty could be imposed on its import into the colony where it would be consumed. The British parliament imposes a duty of one penny a gallon on molasses imported into America. Massachusetts Bay also imposes a provincial tax of eight pence a hogshead on molasses imported in ships belonging to any other colony. South Carolina imposes another tax of five pence a gallon on molasses imported from the northern colonies. If neither method were convenient, each family could instead pay a fixed amount for its consumption of the drink. The amount could be based on the number of people in the family, as with the malt tax paid by private families in England. Or it could be based on their different ages and sexes, as with several taxes in Holland. This would also be close to Sir Matthew Decker's proposal for levying all taxes on goods consumed in England. As already noted, this method of taxation is not very convenient for goods that are consumed quickly. It might be adopted, however, where nothing better could be done.

Sugar, rum, and tobacco, are commodities which are nowhere necessaries of life, which are become objects of almost universal consumption, and which are, therefore, extremely proper subjects of taxation. If a union with the colonies were to take place, those commodities might be taxed, either before they go out of the hands of the manufacturer or grower; or, if this mode of taxation did not suit the circumstances of those persons, they might be deposited in public warehouses, both at the place of manufacture, and at all the different ports of the empire, to which they might afterwards be transported, to remain there, under the joint custody of the owner and the revenue officer, till such time as they should be delivered out, either to the consumer, to the merchant-retailer for home consumption, or to the merchant-exporter; the tax not to be advanced till such delivery. When delivered out for exportation, to go duty-free, upon proper security being given, that they should really be exported out of the empire. These are, perhaps, the principal commodities, with regard to which the union with the colonies might require some considerable change in the present system of British taxation.

Sugar, rum, and tobacco are not necessities of life anywhere, yet people consume them almost everywhere. They are therefore especially suitable for taxation. If a union with the colonies took place, these goods could be taxed before they left the manufacturer or grower. If that method did not suit manufacturers or growers, the goods could instead be placed in public warehouses. These warehouses could be located both where the goods were made and at the empire’s various ports. The goods could later be transported to those ports and stored there. The owner and a tax officer would hold them jointly until they were released. They could be released to consumers, retailers selling for home consumption, or merchants exporting them. The tax would not have to be paid until the goods were released. Goods released for export would be duty-free, provided proper security was given to ensure they were actually exported from the empire. These are perhaps the main goods for which a union with the colonies might require considerable changes to the current British tax system.

What might be the amount of the revenue which this system of taxation, extended to all the different provinces of the empire, might produce, it must, no doubt, be altogether impossible to ascertain with tolerable exactness. By means of this system, there is annually levied in Great Britain, upon less than eight millions of people, more than ten millions of revenue. Ireland contains more than two millions of people, and, according to the accounts laid before the congress, the twelve associated provinces of America contain more than three. Those accounts, however, may have been exaggerated, in order, perhaps, either to encourage their own people, or to intimidate those of this country; and we shall suppose, therefore, that our North American and West Indian colonies, taken together, contain no more than three millions; or that the whole British empire, in Europe and America, contains no more than thirteen millions of inhabitants. If, upon less than eight millions of inhabitants, this system of taxation raises a revenue of more than ten millions sterling; it ought, upon thirteen millions of inhabitants, to raise a revenue of more than sixteen millions two hundred and fifty thousand pounds sterling. From this revenue, supposing that this system could produce it, must be deducted the revenue usually raised in Ireland and the plantations, for defraying the expense of the respective civil governments. The expense of the civil and military establishment of Ireland, together with the interest of the public debt, amounts, at a medium of the two years which ended March 1775, to something less than seven hundred and fifty thousand pounds a year. By a very exact account of the revenue of the principal colonies of America and the West Indies, it amounted, before the commencement of the present disturbances, to a hundred and forty-one thousand eight hundred pounds. In this account, however, the revenue of Maryland, of North Carolina, and of all our late acquisitions, both upon the continent, and in the islands, is omitted; which may, perhaps, make a difference of thirty or forty thousand pounds. For the sake of even numbers, therefore, let us suppose that the revenue necessary for supporting the civil government of Ireland and the plantations may amount to a million. There would remain, consequently, a revenue of fifteen millions two hundred and fifty thousand pounds, to be applied towards defraying the general expense of the empire, and towards paying the public debt. But if, from the present revenue of Great Britain, a million could, in peaceable times, be spared towards the payment of that debt, six millions two hundred and fifty thousand pounds could very well be spared from this improved revenue. This great sinking fund, too, might be augmented every year by the interest of the debt which had been discharged the year before; and might, in this manner, increase so very rapidly, as to be sufficient in a few years to discharge the whole debt, and thus to restore completely the at-present debilitated and languishing vigour of the empire. In the meantime, the people might be relieved from some of the most burdensome taxes; from those which are imposed either upon the necessaries of life, or upon the materials of manufacture. The labouring poor would thus be enabled to live better, to work cheaper, and to send their goods cheaper to market. The cheapness of their goods would increase the demand for them, and consequently for the labour of those who produced them. This increase in the demand for labour would both increase the numbers, and improve the circumstances of the labouring poor. Their consumption would increase, and, together with it, the revenue arising from all those articles of their consumption upon which the taxes might be allowed to remain.

It is surely impossible to estimate with reasonable accuracy how much revenue this tax system might produce across all the provinces of the empire. In Great Britain, the system raises more than £10 million a year from fewer than eight million people. Ireland has more than two million people. According to the accounts presented to Congress, the twelve associated provinces of America have more than three million. Those accounts, however, may have been exaggerated. Perhaps this was done to encourage their own people or to intimidate the people of this country. We will therefore assume that our North American and West Indian colonies together contain no more than three million people. On that assumption, the whole British empire in Europe and America has no more than thirteen million inhabitants. This tax system raises more than £10 million from fewer than eight million people. It should therefore raise more than £16,250,000 from thirteen million. Suppose the system could produce that sum. We would have to deduct the revenue usually raised in Ireland and the colonies to pay for their respective civil governments. Ireland's civil and military establishment, together with the interest on its public debt, cost slightly less than £750,000 a year. This figure is the average for the two years ending in March 1775. A very exact account gives the revenue of the principal colonies in America and the West Indies before the present disturbances began. It amounted to £141,800. The account, however, leaves out the revenue of Maryland, North Carolina, and all our recent acquisitions on the continent and the islands. These may perhaps add another £30,000 or £40,000. For the sake of round numbers, then, let us suppose that £1 million is needed to support civil government in Ireland and the colonies. That would leave £15,250,000 to cover the general expenses of the empire and pay its public debt. In peaceful times, £1 million of Great Britain's present revenue could be spared to pay that debt. If so, £6,250,000 could readily be spared from the increased revenue. This great sinking fund could also grow each year by the interest saved on debt paid off the year before. In this way, it could grow rapidly enough to pay off the whole debt in a few years. The empire's present weakened and declining vigor could then be fully restored. Meanwhile, the people could be relieved of some of the most burdensome taxes. These include taxes on the necessities of life and on materials used in manufacturing. The working poor could then live better, work for less, and bring their goods to market at lower prices. Cheaper goods would increase demand for them and, consequently, for the labor of those who produced them. Greater demand for labor would both increase the number of working poor and improve their circumstances. Their consumption would rise, along with the revenue from any goods they consumed that remained taxed.

The revenue arising from this system of taxation, however, might not immediately increase in proportion to the number of people who were subjected to it. Great indulgence would for some time be due to those provinces of the empire which were thus subjected to burdens to which they had not before been accustomed; and even when the same taxes came to be levied everywhere as exactly as possible, they would not everywhere produce a revenue proportioned to the numbers of the people. In a poor country, the consumption of the principal commodities subject to the duties of customs and excise, is very small; and in a thinly inhabited country, the opportunities of smuggling are very great. The consumption of malt liquors among the inferior ranks of people in Scotland is very small; and the excise upon malt, beer, and ale, produces less there than in England, in proportion to the numbers of the people and the rate of the duties, which upon malt is different, on account of a supposed difference of quality. In these particular branches of the excise, there is not, I apprehend, much more smuggling in the one country than in the other. The duties upon the distillery, and the greater part of the duties of customs, in proportion to the numbers of people in the respective countries, produce less in Scotland than in England, not only on account of the smaller consumption of the taxed commodities, but of the much greater facility of smuggling. In Ireland, the inferior ranks of people are still poorer than in Scotland, and many parts of the country are almost as thinly inhabited. In Ireland, therefore, the consumption of the taxed commodities might, in proportion to the number of the people, be still less than in Scotland, and the facility of smuggling nearly the same. In America and the West Indies, the white people, even of the lowest rank, are in much better circumstances than those of the same rank in England; and their consumption of all the luxuries in which they usually indulge themselves, is probably much greater. The blacks, indeed, who make the greater part of the inhabitants, both of the southern colonies upon the continent and of the West India islands, as they are in a state of slavery, are, no doubt, in a worse condition than the poorest people either in Scotland or Ireland. We must not, however, upon that account, imagine that they are worse fed, or that their consumption of articles which might be subjected to moderate duties, is less than that even of the lower ranks of people in England. In order that they may work well, it is the interest of their master that they should be fed well, and kept in good heart, in the same manner as it is his interest that his working cattle should be so. The blacks, accordingly, have almost everywhere their allowance of rum, and of molasses or spruce-beer, in the same manner as the white servants; and this allowance would not probably be withdrawn, though those articles should be subjected to moderate duties. The consumption of the taxed commodities, therefore, in proportion to the number of inhabitants, would probably be as great in America and the West Indies as in any part of the British empire. The opportunities of smuggling, indeed, would be much greater; America, in proportion to the extent of the country, being much more thinly inhabited than either Scotland or Ireland. If the revenue, however, which is at present raised by the different duties upon malt and malt liquors, were to be levied by a single duty upon malt, the opportunity of smuggling in the most important branch of the excise would be almost entirely taken away; and if the duties of customs, instead of being imposed upon almost all the different articles of importation, were confined to a few of the most general use and consumption, and if the levying of those duties were subjected to the excise laws, the opportunity of smuggling, though not so entirely taken away, would be very much diminished. In consequence of those two apparently very simple and easy alterations, the duties of customs and excise might probably produce a revenue as great, in proportion to the consumption of the most thinly inhabited province, as they do at present, in proportion to that of the most populous.

Revenue from this tax system, however, might not immediately increase in proportion to the number of people taxed. For some time, considerable leniency would be due to those provinces of the empire newly subjected to unfamiliar burdens. Even when the same taxes were collected as uniformly as possible everywhere, revenue would not everywhere match the population. In a poor country, people consume very little of the main goods subject to customs and excise duties. In a sparsely populated country, there are many opportunities for smuggling. Among the lower ranks in Scotland, consumption of malt drinks is very low. Excise duties on malt, beer, and ale bring in less there than in England, relative to population and tax rates. The duty on malt differs because of a supposed difference in quality. In these particular branches of excise, I believe there is not much more smuggling in one country than the other. Duties on distilling and most customs duties also bring in less per person in Scotland than in England. This is due not only to lower consumption of taxed goods, but also to the much greater ease of smuggling. In Ireland, the lower ranks are still poorer than in Scotland, and many parts are almost as sparsely populated. Consumption of taxed goods per person might therefore be still lower in Ireland than in Scotland. Smuggling might be nearly as easy. In America and the West Indies, white people, even of the lowest rank, are much better off than their English counterparts. They probably consume much more of all the luxuries they usually enjoy. The blacks, however, make up most of the inhabitants of the southern mainland colonies and the West India islands. Because they are in a state of slavery, they are undoubtedly worse off than the poorest people in Scotland or Ireland. But we should not therefore imagine that they are worse fed. Nor should we imagine that they consume fewer goods that could be subject to moderate duties, even compared with the lower ranks in England. To ensure that they work well, their master has an interest in feeding them well and keeping them in good spirits. He has the same interest in doing so for his working cattle. Accordingly, almost everywhere the blacks receive an allowance of rum and of molasses or spruce beer, just as white servants do. This allowance would probably not be withdrawn, even if those goods were subject to moderate duties. Consumption of taxed goods per inhabitant would therefore probably be as great in America and the West Indies as anywhere in the British empire. Opportunities for smuggling, however, would be much greater. Relative to its size, America is much more sparsely populated than either Scotland or Ireland. But suppose the revenue now raised by the various duties on malt and malt drinks were raised by a single duty on malt. The opportunity to smuggle in the most important branch of excise would then be almost entirely removed. And suppose customs duties were limited to a few of the most widely used and consumed imports. At present, they are imposed on almost all imported goods. If these limited duties were also collected under excise laws, the opportunity for smuggling would be greatly reduced, though not entirely removed. As a result of these two apparently simple and easy changes, customs and excise duties might probably bring in as much revenue relative to consumption in the most sparsely populated province as they now do in the most populous one.

The Americans, it has been said, indeed, have no gold or silver money, the interior commerce of the country being carried on by a paper currency; and the gold and silver, which occasionally come among them, being all sent to Great Britain, in return for the commodities which they receive from us. But without gold and silver, it is added, there is no possibility of paying taxes. We already get all the gold and silver which they have. How is it possible to draw from them what they have not?

It has indeed been said that the Americans have no gold or silver money. They use paper currency for trade within the country. Any gold and silver that occasionally comes to them is all sent to Great Britain in return for the goods they receive from us. But, the argument continues, taxes cannot be paid without gold and silver. We already get all the gold and silver they have. How can we take from them what they do not have?

The present scarcity of gold and silver money in America, is not the effect of the poverty of that country, or of the inability of the people there to purchase those metals. In a country where the wages of labour are so much higher, and the price of provisions so much lower than in England, the greater part of the people must surely have wherewithal to purchase a greater quantity, if it were either necessary or convenient for them to do so. The scarcity of those metals, therefore, must be the effect of choice, and not of necessity.

The current shortage of gold and silver money in America is not caused by the country’s poverty. Nor is it caused by the people’s inability to buy those metals. Wages in America are much higher than in England, and food prices are much lower. Most people in America must surely be able to buy more gold and silver if doing so were necessary or convenient. The shortage of those metals, therefore, must be a matter of choice, not necessity.

It is for transacting either domestic or foreign business, that gold or silver money is either necessary or convenient.

Gold or silver money is necessary or convenient for doing business at home or abroad.

The domestic business of every country, it has been shewn in the second book of this Inquiry, may, at least in peaceable times, be transacted by means of a paper currency, with nearly the same degree of conveniency as by gold and silver money. It is convenient for the Americans, who could always employ with profit, in the improvement of their lands, a greater stock than they can easily get, to save as much as possible the expense of so costly an instrument of commerce as gold and silver; and rather to employ that part of their surplus produce which would be necessary for purchasing those metals, in purchasing the instruments of trade, the materials of clothing, several parts of household furniture, and the iron work necessary for building and extending their settlements and plantations; in purchasing not dead stock, but active and productive stock. The colony governments find it for their interest to supply the people with such a quantity of paper money as is fully sufficient, and generally more than sufficient, for transacting their domestic business. Some of those governments, that of Pennsylvania, particularly, derive a revenue from lending this paper money to their subjects, at an interest of so much per cent. Others, like that of Massachusetts Bay, advance, upon extraordinary emergencies, a paper money of this kind for defraying the public expense; and afterwards, when it suits the conveniency of the colony, redeem it at the depreciated value to which it gradually falls. In 1747, {See Hutchinson’s History of Massachusetts Bay vol. ii. page 436 et seq.} that colony paid in this manner the greater part of its public debts, with the tenth part of the money for which its bills had been granted. It suits the conveniency of the planters, to save the expense of employing gold and silver money in their domestic transactions; and it suits the conveniency of the colony governments, to supply them with a medium, which, though attended with some very considerable disadvantages, enables them to save that expense. The redundancy of paper money necessarily banishes gold and silver from the domestic transactions of the colonies, for the same reason that it has banished those metals from the greater part of the domestic transactions in Scotland; and in both countries, it is not the poverty, but the enterprizing and projecting spirit of the people, their desire of employing all the stock which they can get, as active and productive stock, which has occasioned this redundancy of paper money.

As shown in the second book of this Inquiry, paper currency can serve a country’s domestic business almost as conveniently as gold and silver money, at least in peaceful times. Americans can always profitably use more capital to improve their land than they can easily obtain. It therefore makes sense for them to save as much as possible on a costly instrument of commerce like gold and silver. They can instead use the surplus produce needed to buy those metals to buy tools of trade, clothing materials, various household furnishings, and the ironwork needed to build and expand their settlements and plantations. In this way, they buy not idle capital, but active and productive capital. Colonial governments find it in their interest to supply enough paper money for all domestic business, and generally more than enough. Some governments, particularly that of Pennsylvania, earn revenue by lending this paper money to their subjects at a set rate of interest. Others, like the government of Massachusetts Bay, issue such paper money to cover public expenses in extraordinary emergencies. Later, when it suits the colony, they redeem it at the lower value to which it has gradually fallen. In 1747, {See Hutchinson’s History of Massachusetts Bay vol. ii. page 436 et seq.} Massachusetts Bay paid most of its public debts in this way, using one tenth of the money for which its bills had been issued. It suits the planters to avoid the expense of using gold and silver money in their domestic transactions. It also suits the colonial governments to supply them with a currency that saves them that expense, though it has some very considerable disadvantages. The excess of paper money necessarily drives gold and silver out of domestic transactions in the colonies. It does so for the same reason that it has driven those metals out of most domestic transactions in Scotland. In both countries, the excess of paper money has arisen not from the people’s poverty, but from their enterprising spirit and their eagerness to undertake projects. They want to use all the capital they can obtain as active and productive capital.

In the exterior commerce which the different colonies carry on with Great Britain, gold and silver are more or less employed, exactly in proportion as they are more or less necessary. Where those metals are not necessary, they seldom appear. Where they are necessary, they are generally found.

In trade between the colonies and Great Britain, gold and silver are used exactly as much as they are needed. Where these metals are not needed, they rarely appear. Where they are needed, they are generally found.

In the commerce between Great Britain and the tobacco colonies, the British goods are generally advanced to the colonists at a pretty long credit, and are afterwards paid for in tobacco, rated at a certain price. It is more convenient for the colonists to pay in tobacco than in gold and silver. It would be more convenient for any merchant to pay for the goods which his correspondents had sold to him, in some other sort of goods which he might happen to deal in, than in money. Such a merchant would have no occasion to keep any part of his stock by him unemployed, and in ready money, for answering occasional demands. He could have, at all times, a larger quantity of goods in his shop or warehouse, and he could deal to a greater extent. But it seldom happens to be convenient for all the correspondents of a merchant to receive payment for the goods which they sell to him, in goods of some other kind which he happens to deal in. The British merchants who trade to Virginia and Maryland, happen to be a particular set of correspondents, to whom it is more convenient to receive payment for the goods which they sell to those colonies in tobacco, than in gold and silver. They expect to make a profit by the sale of the tobacco; they could make none by that of the gold and silver. Gold and silver, therefore, very seldom appear in the commerce between Great Britain and the tobacco colonies. Maryland and Virginia have as little occasion for those metals in their foreign, as in their domestic commerce. They are said, accordingly, to have less gold and silver money than any other colonies in America. They are reckoned, however, as thriving, and consequently as rich, as any of their neighbours.

In trade between Great Britain and the tobacco colonies, British goods are generally supplied to colonists on long credit. The colonists later pay for them in tobacco, valued at an agreed price. It is more convenient for the colonists to pay in tobacco than in gold and silver. Any merchant would find it more convenient to pay suppliers with other goods the merchant happened to trade in. Paying in goods would be more convenient than paying in money. The merchant would not have to keep part of their stock idle as cash to meet occasional demands. They could always keep more goods in their shop or warehouse and trade on a larger scale. But a merchant's suppliers rarely all find it convenient to accept payment in other goods the merchant happens to trade in. British merchants who trade with Virginia and Maryland are a particular group of suppliers. They find it more convenient to receive tobacco than gold and silver in payment for goods sold to those colonies. They expect to profit from selling the tobacco. They could make no profit by selling the gold and silver. Gold and silver therefore appear very rarely in trade between Great Britain and the tobacco colonies. Maryland and Virginia have as little need for those metals in their foreign trade as in their domestic trade. They are accordingly said to have less gold and silver money than any other colonies in America. Yet they are thought to be as prosperous, and therefore as rich, as any of their neighbors.

In the northern colonies, Pennsylvania, New York, New Jersey, the four governments of New England, etc. the value of their own produce which they export to Great Britain is not equal to that of the manufactures which they import for their own use, and for that of some of the other colonies, to which they are the carriers. A balance, therefore, must be paid to the mother-country in gold and silver and this balance they generally find.

The northern colonies include Pennsylvania, New York, New Jersey, the four governments of New England, and others. The value of their own goods exported to Great Britain is less than that of the manufactured goods they import. They import these goods for their own use and for some other colonies, to which they transport them. They must therefore pay the balance to the mother country in gold and silver, and they generally find it.

In the sugar colonies, the value of the produce annually exported to Great Britain is much greater than that of all the goods imported from thence. If the sugar and rum annually sent to the mother-country were paid for in those colonies, Great Britain would be obliged to send out, every year, a very large balance in money; and the trade to the West Indies would, by a certain species of politicians, be considered as extremely disadvantageous. But it so happens, that many of the principal proprietors of the sugar plantations reside in Great Britain. Their rents are remitted to them in sugar and rum, the produce of their estates. The sugar and rum which the West India merchants purchase in those colonies upon their own account, are not equal in value to the goods which they annually sell there. A balance, therefore, must necessarily be paid to them in gold and silver, and this balance, too, is generally found.

In the sugar colonies, the value of the produce exported to Great Britain each year is much greater than that of all the goods imported from there. If the sugar and rum sent to the mother country each year were paid for in the colonies, Great Britain would have to send a very large sum of money each year to make up the difference. Certain politicians would then regard the West Indies trade as extremely disadvantageous. But many of the principal owners of sugar plantations live in Great Britain. Their rents are sent to them in sugar and rum produced on their estates. West India merchants also buy sugar and rum in the colonies for themselves. The value of those purchases is less than that of the goods they sell there each year. So the merchants must be paid the difference in gold and silver, and they generally receive it.

The difficulty and irregularity of payment from the different colonies to Great Britain, have not been at all in proportion to the greatness or smallness of the balances which were respectively due from them. Payments have, in general, been more regular from the northern than from the tobacco colonies, though the former have generally paid a pretty large balance in money, while the latter have either paid no balance, or a much smaller one. The difficulty of getting payment from our different sugar colonies has been greater or less in proportion, not so much to the extent of the balances respectively due from them, as to the quantity of uncultivated land which they contained; that is, to the greater or smaller temptation which the planters have been under of over-trading, or of undertaking the settlement and plantation of greater quantities of waste land than suited the extent of their capitals. The returns from the great island of Jamaica, where there is still much uncultivated land, have, upon this account, been, in general, more irregular and uncertain than those from the smaller islands of Barbadoes, Antigua, and St. Christopher’s, which have, for these many years, been completely cultivated, and have, upon that account, afforded less field for the speculations of the planter. The new acquisitions of Grenada, Tobago, St. Vincent’s, and Dominica, have opened a new field for speculations of this kind; and the returns from those islands have of late been as irregular and uncertain as those from the great island of Jamaica.

The difficulty and irregularity of payments from the colonies to Great Britain have not matched the size of their outstanding balances. Payments have generally been more regular from the northern colonies than from the tobacco colonies. Yet the northern colonies have generally paid a fairly large balance in money. The tobacco colonies have paid either no balance or a much smaller one. The difficulty of obtaining payment from the sugar colonies has varied less with their outstanding balances than with their uncultivated land. The more uncultivated land a colony had, the more its planters were tempted to overtrade. That is, they were tempted to settle and plant more uncultivated land than their capital could support. Much land on the great island of Jamaica is still uncultivated. For this reason, returns from Jamaica have generally been more irregular and uncertain than those from the smaller islands of Barbadoes, Antigua, and St. Christopher’s. Those islands have been completely cultivated for many years. They have therefore offered planters less scope for speculation. The new acquisitions of Grenada, Tobago, St. Vincent’s, and Dominica have opened a new field for such speculation. Lately, returns from those islands have been as irregular and uncertain as those from the great island of Jamaica.

It is not, therefore, the poverty of the colonies which occasions, in the greater part of them, the present scarcity of gold and silver money. Their great demand for active and productive stock makes it convenient for them to have as little dead stock as possible, and disposes them, upon that account, to content themselves with a cheaper, though less commodious instrument of commerce, than gold and silver. They are thereby enabled to convert the value of that gold and silver into the instruments of trade, into the materials of clothing, into household furniture, and into the iron work necessary for building and extending their settlements and plantations. In those branches of business which cannot be transacted without gold and silver money, it appears, that they can always find the necessary quantity of those metals; and if they frequently do not find it, their failure is generally the effect, not of their necessary poverty, but of their unnecessary and excessive enterprise. It is not because they are poor that their payments are irregular and uncertain, but because they are too eager to become excessively rich. Though all that part of the produce of the colony taxes, which was over and above what was necessary for defraying the expense of their own civil and military establishments, were to be remitted to Great Britain in gold and silver, the colonies have abundantly wherewithal to purchase the requisite quantity of those metals. They would in this case be obliged, indeed, to exchange a part of their surplus produce, with which they now purchase active and productive stock, for dead stock. In transacting their domestic business, they would be obliged to employ a costly, instead of a cheap instrument of commerce; and the expense of purchasing this costly instrument might damp somewhat the vivacity and ardour of their excessive enterprise in the improvement of land. It might not, however, be necessary to remit any part of the American revenue in gold and silver. It might be remitted in bills drawn upon, and accepted by, particular merchants or companies in Great Britain, to whom a part of the surplus produce of America had been consigned, who would pay into the treasury the American revenue in money, after having themselves received the value of it in goods; and the whole business might frequently be transacted without exporting a single ounce of gold or silver from America.

The scarcity of gold and silver money in most colonies is therefore not caused by poverty. The colonies have a great demand for capital they can put to productive use. So it suits them to hold as little unproductive stock as possible. For that reason, they are willing to use a cheaper, though less convenient, means of commerce than gold and silver. They can then use the value of that gold and silver to buy tools of trade, materials for clothing, household furniture, and the ironwork needed to build and expand their settlements and plantations. For business that cannot be done without gold and silver money, the colonies appear always able to find enough. If they often fail to find enough, the cause is generally not unavoidable poverty, but unnecessary and excessive enterprise. Their payments are irregular and uncertain not because they are poor, but because they are too eager to become excessively rich. Suppose the colonies sent to Great Britain all the tax revenue left after paying for their own civil and military establishments. Even if they sent it in gold and silver, they would have more than enough to buy the necessary metals. They would, however, have to exchange some of their surplus produce for unproductive stock. They now use that produce to buy capital they can put to productive use. In their domestic business, they would have to use an expensive rather than a cheap means of commerce. The cost of buying this expensive means might somewhat dampen the energy and enthusiasm of their excessive efforts to improve land. It might not, however, be necessary to send any American revenue in gold and silver. It could be sent in bills drawn on and accepted by particular merchants or companies in Great Britain. Some of America's surplus produce would be sent to these merchants or companies. After receiving its value in goods, they would pay the American revenue into the treasury in money. The whole transaction could often be carried out without exporting a single ounce of gold or silver from America.

It is not contrary to justice, that both Ireland and America should contribute towards the discharge of the public debt of Great Britain. That debt has been contracted in support of the government established by the Revolution; a government to which the protestants of Ireland owe, not only the whole authority which they at present enjoy in their own country, but every security which they possess for their liberty, their property, and their religion; a government to which several of the colonies of America owe their present charters, and consequently their present constitution; and to which all the colonies of America owe the liberty, security, and property, which they have ever since enjoyed. That public debt has been contracted in the defence, not of Great Britain alone, but of all the different provinces of the empire. The immense debt contracted in the late war in particular, and a great part of that contracted in the war before, were both properly contracted in defence of America.

It is not unjust for both Ireland and America to contribute to paying off Great Britain’s public debt. That debt was incurred to support the government established by the Revolution. Irish Protestants owe that government not only all the authority they now enjoy in their own country, but also every protection they have for their liberty, property, and religion. Several American colonies owe that government their current charters and, therefore, their current constitutions. All the American colonies owe it the liberty, security, and property they have enjoyed ever since. The public debt was incurred in defending not only Great Britain, but all the provinces of the empire. In particular, the immense debt incurred in the recent war was incurred in defense of America. The same was true of a great part of the debt incurred in the previous war.

By a union with Great Britain, Ireland would gain, besides the freedom of trade, other advantages much more important, and which would much more than compensate any increase of taxes that might accompany that union. By the union with England, the middling and inferior ranks of people in Scotland gained a complete deliverance from the power of an aristocracy, which had always before oppressed them. By a union with Great Britain, the greater part of people of all ranks in Ireland would gain an equally complete deliverance from a much more oppressive aristocracy; an aristocracy not founded, like that of Scotland, in the natural and respectable distinctions of birth and fortune, but in the most odious of all distinctions, those of religious and political prejudices; distinctions which, more than any other, animate both the insolence of the oppressors, and the hatred and indignation of the oppressed, and which commonly render the inhabitants of the same country more hostile to one another than those of different countries ever are. Without a union with Great Britain, the inhabitants of Ireland are not likely, for many ages, to consider themselves as one people.

A union with Great Britain would give Ireland free trade and other, much more important advantages. These would more than compensate for any increase in taxes that might accompany the union. Through union with England, Scotland's middle and lower ranks gained complete freedom from an aristocracy that had always oppressed them. Through union with Great Britain, most people of all ranks in Ireland would gain equally complete freedom from a far more oppressive aristocracy. Unlike Scotland's aristocracy, Ireland's was not founded on the natural and respectable distinctions of birth and wealth. Instead, it was founded on the most hateful distinctions of all: those based on religious and political prejudices. More than any others, these distinctions fuel the arrogance of the oppressors and the hatred and anger of the oppressed. They usually make people in the same country more hostile to one another than people from different countries ever are. Without union with Great Britain, the people of Ireland are unlikely to see themselves as one people for many ages.

No oppressive aristocracy has ever prevailed in the colonies. Even they, however, would, in point of happiness and tranquillity, gain considerably by a union with Great Britain. It would, at least, deliver them from those rancourous and virulent factions which are inseparable from small democracies, and which have so frequently divided the affections of their people, and disturbed the tranquillity of their governments, in their form so nearly democratical. In the case of a total separation from Great Britain, which, unless prevented by a union of this kind, seems very likely to take place, those factions would be ten times more virulent than ever. Before the commencement of the present disturbances, the coercive power of the mother-country had always been able to restrain those factions from breaking out into any thing worse than gross brutality and insult. If that coercive power were entirely taken away, they would probably soon break out into open violence and bloodshed. In all great countries which are united under one uniform government, the spirit of party commonly prevails less in the remote provinces than in the centre of the empire. The distance of those provinces from the capital, from the principal seat of the great scramble of faction and ambition, makes them enter less into the views of any of the contending parties, and renders them more indifferent and impartial spectators of the conduct of all. The spirit of party prevails less in Scotland than in England. In the case of a union, it would probably prevail less in Ireland than in Scotland; and the colonies would probably soon enjoy a degree of concord and unanimity, at present unknown in any part of the British empire. Both Ireland and the colonies, indeed, would be subjected to heavier taxes than any which they at present pay. In consequence, however, of a diligent and faithful application of the public revenue towards the discharge of the national debt, the greater part of those taxes might not be of long continuance, and the public revenue of Great Britain might soon be reduced to what was necessary for maintaining a moderate peace-establishment.

No oppressive aristocracy has ever held power in the colonies. Even so, a union with Great Britain would greatly increase their happiness and peace. At least, it would free them from the bitter and hostile factions that are inseparable from small democracies. These factions have so often divided the loyalties of their people. They have also disturbed the peace of their governments, which are so nearly democratic in form. The colonies seem very likely to separate completely from Great Britain, unless a union of this kind prevents it. In that case, the factions would be ten times more hostile than ever. Before the present unrest began, the mother country's power to use force had always restrained these factions. It had kept them from doing anything worse than crude acts of brutality and insult. If that power were removed entirely, they would probably soon erupt into open violence and bloodshed. In all large countries united under one uniform government, party spirit is usually weaker in remote provinces than at the center of the empire. Those provinces are far from the capital, the main scene of the fierce struggle between factions and ambitious people. Their distance makes them less inclined to share the views of any of the competing parties. It also makes them more indifferent and impartial observers of every party's conduct. Party spirit is weaker in Scotland than in England. If there were a union, it would probably be weaker in Ireland than in Scotland. The colonies would probably soon enjoy a degree of harmony and unity now unknown anywhere in the British empire. Both Ireland and the colonies would, indeed, face heavier taxes than they now pay. But public revenue could be used carefully and faithfully to pay off the national debt. As a result, most of those taxes might not last long. Great Britain's public revenue could then soon be reduced to what was needed to maintain a moderate peacetime establishment.

The territorial acquisitions of the East India Company, the undoubted right of the Crown, that is, of the state and people of Great Britain, might be rendered another source of revenue, more abundant, perhaps, than all those already mentioned. Those countries are represented as more fertile, more extensive, and, in proportion to their extent, much richer and more populous than Great Britain. In order to draw a great revenue from them, it would not probably be necessary to introduce any new system of taxation into countries which are already sufficiently, and more than sufficiently, taxed. It might, perhaps, be more proper to lighten than to aggravate the burden of those unfortunate countries, and to endeavour to draw a revenue from them, not by imposing new taxes, but by preventing the embezzlement and misapplication of the greater part of those which they already pay.

The territories acquired by the East India Company could provide another source of revenue. They undoubtedly belong to the Crown, meaning the state and people of Great Britain. Their revenue might perhaps exceed all the sources already mentioned. These countries are said to be more fertile and larger than Great Britain. They are also said to be much richer and more populous in proportion to their size. To draw a large revenue from them, it would probably not be necessary to introduce a new tax system. These countries are already taxed enough, and more than enough. Perhaps it would be better to lighten the burden on these unfortunate countries than to increase it. Rather than imposing new taxes, the government could try to draw revenue by preventing the embezzlement and misuse of most of the taxes they already pay.

If it should be found impracticable for Great Britain to draw any considerable augmentation of revenue from any of the resources above mentioned, the only resource which can remain to her, is a diminution of her expense. In the mode of collecting and in that of expending the public revenue, though in both there may be still room for improvement, Great Britain seems to be at least as economical as any of her neighbours. The military establishment which she maintains for her own defence in time of peace, is more moderate than that of any European state, which can pretend to rival her either in wealth or in power. None of these articles, therefore, seem to admit of any considerable reduction of expense. The expense of the peace-establishment of the colonies was, before the commencement of the present disturbances, very considerable, and is an expense which may, and, if no revenue can be drawn from them, ought certainly to be saved altogether. This constant expense in time of peace, though very great, is insignificant in comparison with what the defence of the colonies has cost us in time of war. The last war, which was undertaken altogether on account of the colonies, cost Great Britain, it has already been observed, upwards of ninety millions. The Spanish war of 1739 was principally undertaken on their account; in which, and in the French war that was the consequence of it, Great Britain, spent upwards of forty millions; a great part of which ought justly to be charged to the colonies. In those two wars, the colonies cost Great Britain much more than double the sum which the national debt amounted to before the commencement of the first of them. Had it not been for those wars, that debt might, and probably would by this time, have been completely paid; and had it not been for the colonies, the former of those wars might not, and the latter certainly would not, have been undertaken. It was because the colonies were supposed to be provinces of the British Empire, that this expense was laid out upon them. But countries which contribute neither revenue nor military force towards the support of the empire, cannot be considered as provinces. They may, perhaps, be considered as appendages, as a sort of splendid and shewy equipage of the empire. But if the empire can no longer support the expense of keeping up this equipage, it ought certainly to lay it down; and if it cannot raise its revenue in proportion to its expense, it ought at least to accommodate its expense to its revenue. If the colonies, notwithstanding their refusal to submit to British taxes, are still to be considered as provinces of the British empire, their defence, in some future war, may cost Great Britain as great an expense as it ever has done in any former war. The rulers of Great Britain have, for more than a century past, amused the people with the imagination that they possessed a great empire on the west side of the Atlantic. This empire, however, has hitherto existed in imagination only. It has hitherto been, not an empire, but the project of an empire; not a gold mine, but the project of a gold mine; a project which has cost, which continues to cost, and which, if pursued in the same way as it has been hitherto, is likely to cost, immense expense, without being likely to bring any profit; for the effects of the monopoly of the colony trade, it has been shewn, are to the great body of the people, mere loss instead of profit. It is surely now time that our rulers should either realize this golden dream, in which they have been indulging themselves, perhaps, as well as the people; or that they should awake from it themselves, and endeavour to awaken the people. If the project cannot be completed, it ought to be given up. If any of the provinces of the British empire cannot be made to contribute towards the support of the whole empire, it is surely time that Great Britain should free herself from the expense of defending those provinces in time of war, and of supporting any part of their civil or military establishment in time of peace; and endeavour to accommodate her future views and designs to the real mediocrity of her circumstances.

If Great Britain cannot significantly increase its revenue from any of the sources mentioned above, its only remaining option is to reduce spending. There may still be room to improve how public revenue is collected and spent. Even so, Great Britain seems to be at least as economical in both respects as any of its neighbors. Its peacetime military forces for its own defense are smaller than those of any European state that could claim to rival it in wealth or power. None of these expenses, therefore, seems capable of being reduced significantly. Before the present disturbances began, the cost of maintaining the colonies in peacetime was very considerable. This expense can be eliminated altogether, and it certainly should be if no revenue can be drawn from the colonies. Yet this constant peacetime expense, though very great, is insignificant compared with the cost of defending the colonies in wartime. As already noted, the last war was undertaken entirely on account of the colonies and cost Great Britain more than ninety million pounds. The Spanish war of 1739 was undertaken principally on their account. In that war and the French war that followed from it, Great Britain spent more than forty million pounds. A large part of that sum should justly be charged to the colonies. In those two wars, the colonies cost Great Britain much more than twice the national debt before the first war began. Without those wars, the debt could have been completely paid off by now, and probably would have been. Without the colonies, the first of those wars might not have been undertaken, and the second certainly would not have been. Great Britain spent this money on the colonies because they were thought to be provinces of the British Empire. But countries that contribute neither revenue nor military force to support the empire cannot be considered provinces. Perhaps they can be considered appendages, a kind of splendid and showy carriage for the empire. But if the empire can no longer afford to maintain this carriage, it certainly ought to give it up. If it cannot raise its revenue to match its spending, it ought at least to bring its spending into line with its revenue. Despite their refusal to submit to British taxes, the colonies may still be treated as provinces of the British Empire. If so, defending them in a future war may cost Great Britain as much as it ever has in any past war. For more than a century, Great Britain's rulers have entertained the people with the idea that they possessed a great empire west of the Atlantic. Yet this empire has so far existed only in the imagination. It has been not an empire, but a plan for an empire, not a gold mine, but a plan for a gold mine. The plan has cost, and continues to cost, an immense amount. If pursued as it has been so far, it is likely to cost an immense amount without bringing any profit. As has been shown, the monopoly over colonial trade brings the great body of the people only loss, not profit. Surely it is now time for our rulers either to make this golden dream a reality or to wake from it themselves and try to wake the people. They have perhaps been indulging in the dream as much as the people have. If the plan cannot be completed, it ought to be given up. If any provinces of the British Empire cannot be made to contribute to the support of the whole empire, it is surely time for Great Britain to free itself from the expense of defending them in wartime. It should also free itself from the expense of supporting any part of their civil government or military forces in peacetime. And it should try to bring its future aims and plans into line with the actual modest scale of its resources.